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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (31618)	1/22/2009 1:19:06 AM
From: RMF	Read Replies (1) \| Respond to of 71588

The recession of the early 80's was easily, although destructively solved through monetary policy. If you have high inflation then you "squeeze it out" through a tightened monetary policy. You raise interest rates and you reduce the amount of currency in circulation. The FED can do these things all by itself. The "destructive" part is that those actions cause credit to tighten up and interest rates to rise appreciably. People in real estate were screwed. Small businesses were screwed because they couldn't borrow except at horrendous interest rates. Unemployment went to 10% and stayed there for years. TODAY, the problem is that ALL our biggest banks are essentially INSOLVENT. If the government wasn't pumping trillions into the banking system, then ALL the banks would have to declare bankruptcy next week. Capitalism doesn't work very well without banks.