On Nov 27, 2008, at 4:54 PM, Chuck Grimes wrote:
> id you read Barnanke's Helicopter speech Doug posted? He basically
> says the Fed can force feed money into the financial system through a
> variety of ways and stop the economy from falling into `deflation' aka
> a Depression.
>
> I agree with you, I don't see how that will work.
Two points before T'giving dinner. One, Bernanke also said that fiscal policy was important, so spending hundreds of billions will offset a large portion of the contraction in private spending. And two, as he points out (and as Fisher pointed out in his 1933 paper on debt deflations), Roosevelt's ending of the gold standard did reverse the deflation of 1929-32, and the economy started growing again (and with a relatively modest fiscal contribution). Growth rates in 1933-7 were 10.8%, 8.9%, 13.0%, and 5.1%. The unemployment rate fell by more than 10 points. Obviously the depression didn't end, and the fiscal/ monetary tightening of 1937 was a major mistake, but policy can make a big difference. And Bernanke & Co. have been aggressive from the start - unlike the gang in charge from 1929-32. They're not going to be able to avoid a recession, and quite possibly a serious one, but I think they can stop the thing from heading down the vortex of despair.
Doug