[nathanbedford]

The government has stepped on the economic cycle since Roosevelt, usually with precisely counter indicated nostrums. Yet the economy, with the signal exception of the tightening and free trade restrictions which led to the great depression, has alwaysw staggered back, sometimes at an astonishing rate.

Of course the fed is loosening, and this will inflate for now. Which is the time period we are talking about. Whether you are right that in the long run we ought to leave everything alone and take our medicine now, I cannot see so far ahead. I am glad you can. Please keep me informed.

I am also worried about the supposed real estate "bubble" but lower interest rates will prolong it. Recovery will come from the adjustments being made every day in every business and home which will find new markets, new products, new methods, etc.

[arete]

Tight money sure didn't lead to the Great Depression. Tight money lead to a collapse of the highly margined stock market, but had nothing to do with the deflationary depression. Easy money and bubble economics creates a subsequent depression. It was the "roaring twenties".

"Observe that economic depressions are not caused by the collapse in the money stock (as suggested by Milton Friedman), but come in response to a shrinking pool of real funding on account of previous of loose money. Consequently, even if the central bank were to be successful in preventing the fall of the money stock, this would not be able to prevent a depression if the pool of real funding is declining. Also, even if loose monetary polices were to succeed in lifting prices and inflationary expectations (as suggested by Paul Krugman), this would not revive the economy as long as real funding is declining."

"Again, note that contrary to popular thinking, depressions are not caused by tight monetary policies, but are rather the result of previous loose monetary policies. On the contrary, a tighter monetary stance arrests the depletion of the pool of real funding and thereby lays the foundations for economic recovery. Furthermore, the tighter stance reveals the damage that was done to the capital structure by previous monetary policies."

Does a Falling Money Stock Cause Economic Depression?

Richard W.