Oh man, any economic/history geek will be drawn in with these passages:
“It was necessary to go back to the Depression because so much of macroeconomics has been influenced by what happened during it.
“In particular, economists from around the world advised the Japanese authorities to fight the recession with ever more drastic monetary accommodations. They based their recommendations on the past twenty-five years of research into the Depression, which has concluded that the Depression was caused by the failure of monetary policy and that the subsequent recover of the US economy was also made by a change in the policy stance of the Federal Reserve.”
“From my vantage point on the front lines of Japanese financial markets, these policy recommendations seemed utterly unrealistic, because the demand for funds from Japanese businesses has dried up completely even with zero interest rates.
“If it can be shown that the Great Depression was, as was the Japanese recession, a balance sheet recession, and that this was why monetary policy was powerless to fight it, conventional economic theory will have to undergo major changes.”
“Even the classic survey of US monetary history by Anna Schwartz and Milton Friedman, who were the first to argue that the Great Depression could have been avoided through the proper application of monetary policy, and also long championed monetary policy’s primacy, contained many passages supporting the view that the Great Depression was actually a balance sheet recession.”
Weird, we were told the Federal Reserve would keep this stuff from happening…yet it continues to happen…Odd, no?