Daily Archives: July 29, 2012

Ben Bernanke is a noted expert on the Fed’s monetary history, especially in the 1930s. When the FOMC meets on Tuesday, he may spare a moment to remember that this week sees the 80th birthday of a fateful Fed decision in 1932, a decision which some scholars believe led inexorably to the bank failures of early 1933, and the suspension of US membership of the Gold Standard. That decision was to end the only period of aggressive quantitative easing which was attempted by the Fed during the worst period of the Great Depression between 1929 and 1933.

The conditions the Fed faced in July 1932 do not represent a close parallel with the conditions they face this week. Far from it. Yet some of the arguments are uncannily similar, and the episode tells us what might have happened after 2008 if the Fed had adopted the same approach as it did in 1932. The lessons for the ECB this week may be more pertinent.