It’s amazing to me how reluctant people are to prescribe euro-exit. Eichengreen stops well short; quite the contrary, he portrays such a move as disastrous. (The technical issues (ATMs, etc) and legal issues (cross-border debt contracts) are daunting, and the political cost is even worse: second-tier status in the EU if not outright expulsion.) If I […]
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Gold is mysterious – get used to it
We are running the ‘counterfactual’ to the Great Depression. According to modern consensus, the interwar Fed got it wrong. It stood by as banks failed. Depositors fled the banking system, crushing intermediation and hence the money supply (Friedman and Schwartz 1963). What might have been the outcome if the Fed of the interwar period could […]
The Great Depression and today: Similar cycles, different dollars
The conventional narrative describing the Great Depression goes something like this. The US Stock Market crashed in October 1929. De-leveraging from the colossal debt bubble of the late 1920s, combined with falling agricultural prices, led to a bank panic. The Federal Reserve allowed banks to go under rather than jeopardize its own credit worth, the […]
First taste of the New Generation of financial crisis
Today’s crisis is the West’s first taste of a new generation of financial crisis, already known to the developing world from its 1997-98 crises. De-leveraging is the liquidation of exuberance. When fundamentals have long since belied the optimistic notions underlying exuberance, debt contraction is in store. To be sure, East Asia’s economy by 1997 had […]
Asset deflation and “debt deflation”
“[I]n the great booms and depressions, each of the [most popular explanations] has played a subordinate role as compared with two dominant factors, namely over-indebtedness to start with and deflation following soon after…. In short, the big bad actors are debt disturbances and price-level disturbances.” Irving Fisher, “The Debt-Deflation Theory of Great Depressions”, Econometrica (October 1933), 341. […]