"I'm not gonna let this economy crater in order to preserve the free market system."Can't shake that eerie feeling of déjà vu? There's probably a good reason.
~ George W. Bush, Fox News, interview with Bret Baier
In 1927, to help bolster Britain's return to the gold standard, the Federal Reserve decided to encourage gold to flow from the U.S. to England. They did this by cutting the discount rate by ¼ and injecting $200 million into the banking system. The easy-money policy did help western Europe's post-war recovery. But it also fed one helluva a bubble in the stock market.
The following year they decided to get market speculation under control by drastically increasing the discount rate; by August '29 it had been doubled! This triggered a monetary contraction of more than a third through 1933.
As if to add insult to injury, this was followed by an even more activist administration whose "New Deal" actually suppressed a recovery and dealt the country the depression of 1938.
I believe that we'd be better off if Mr. Bush (and his successor) were to heed the words of another George:
Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.
~ George Santayana, Reason in Common Sense
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