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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: russwinter who started this subject6/19/2004 9:14:47 AM
From: glenn_a  Read Replies (1) of 110194
 
Wonderful piece from Doug Noland this weekend:

Monetary Instability and Lessons Not Learned

prudentbear.com

Noland revisits another period preceding that last great global K-wave bust, the late 1920's. He finds very similar credit conditions, and a similarly mistaken emphasis on price stability (of consumer goods), and in the case of the 1920's exchange rate stability (under the tenet of the "real bills doctrine").

While Noland does not discuss the geopolitical context (which is appropriate K-wave analysis IMO, and also highly relevant to the consequent global monetary environment), he does a wonderful job of "debunking" the notion that the Great Depression of the 1930's was "caused" by excessively tight monetary policy and "policy error" which kept monetary policy too tight.

Rather, Noland argues that credit conditions in the later years of the 1920's were in fact very lax, and led to (like today) rampant and non-productive asset speculation. This created conditions of systemic monetary instability which made the spectacular deflationary bust unavoidable.

Noland briefly alludes to the flow of gold that was the primary mechanism for stabilizing exchange rates, and it was this flow that ruptured and led to the final breaking of the gold standard (and exchange rate stability at set parity) of the late 1920's. I would have liked it very much if Noland would have expanded on this dynamic.

Well history never repeats identically, and this time things may indeed be different, the historical parallels between today and the late 1920's are profound IMO.

Regards,
Glenn
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