Thursday, August 18, 2011

Is The Fed Guilty of Treason?

link here to article

Simon Johnson compares the Great Depression with the Great Recession and concludes that we are not at risk of anything like the Great Depression. He is concerned that GOP politicians who accuse Ben Bernanke of treason present a more serious problem. He points out that the US was once an agricultural economy that was dependent upon debt. Farmers needed to finance crop preparation and pay back their debt at harvest time. The economy suffered severely during a period of price deflation. The farmers got less money from their harvest and they had to pay back their loans with more expensive dollars. The Fed did some things poorly during the financial crisis but its primary goal is to prevent deflation. This would make it more expensive for heavily leveraged households and businesses to service their debt. Without actions taken by the Fed to limit deflation we could wind up with something worse than the Great Depression.

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