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Party Like It's 1937

Sunday, April 17, 2011 - 12:17 AM
Dueling deficit-cutting plans, plus end of QE2, raise risk of premature withdrawal of stimulus. St. Augustine, let us pray.

Just as the U.S. economy is emerging from a severe contraction caused by a credit crisis, there are pressures to tighten both fiscal and monetary policies in order to rein in an excessive budget deficit and stave off nascent inflation.

Sound familiar? It should, because that is precisely what happened in 1937. As students of economic history are aware, those shifts to restrictive policies on the budget and by the Federal Reserve set the stage of the second part of the Great Depression.

MikeMike327 posts since
Feb 22, 2010
Rep Points: 876
1. Sunday, April 17, 2011 - 6:17 AM
Since Bernanke is an expert in the Great Depression, it seems likely he'll push to continue the easy monetary policy. But as the last part of the article concludes, he may see the need of some changes:
That leaves the dilemma - that current unsound policies are unsustainable, but putting them on a sound footing just now could be destabilizing.

Ken TuminKen Tumin5,472 posts since
Nov 29, 2009
Rep Points: 125,708