How To Read Ben

Ben Bernanke just gave a speech where he made it clear that he will use all tools available to him to stabilize markets and to promote the extension of credit.

Anyone who wants to understand Ben Bernanke should read this book: Essays on the Great Depression by (duh) Ben Bernanke. In the first chapter, which is actually a lecture, he discusses the current thinking on the causes of the Great Depression.

He makes it very clear that he puts much of the blame for its length and duration on 1) contraction in the money supply, 2) the deflationary spiral that occurred, and 3) the unwillingness of policy makers to address that deflationary spiral early.

He also notes that those countries that abandoned the gold standard (which had been re-adopted by most countries in the 1920s) were able to quickly reflate their economies and recovered far faster than those who did not.

Understand this interpretation, and you will understand Bernanke. He is determined to reflate the economy by pumping massive amounts of money into the system because he believes that contraction in the money supply was a primary factor in the Great Depression.



Questions? Comments?