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March 19, 2009


John Mayson

Why does this sound familiar? Oh yeah, Germany did this in the early 1920's.


It is not Weimar Germany, it is Bernanke attempting to be the anti-1929 Fed where they failed to recognize deflation and contracted the money supply before timidly extending credit later on. The counterfactual assumption is that a massive increase in the money supply would have averted the Great Depression.

This is, of course, a theory. We have no idea what would have happened if the Fed did that in 1929 because it did not happen and dollars then had a tie to specie which they do not now. Information flows then, were also far more unequalized than today. Small town bankers relied on what they were told by remote authorities. So maybe it would have helped. It might help now but the situation now has significant differences with 1929. A gamble of epic proportions.

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