Commentary From the Mile High City

"Star of the conservative blogosphere" Denver Post

"The Rocky Mountain Alliance offers the best of what the blogosphere has to offer." -David Harsanyi, Denver Post
Joshua Sharf

 notify list
to receive email when this site is updated, enter your email address:
 recent posts
24 (2 entries)
Anglosphere (1 entries)
Biking (1 entries)
Blogging (35 entries)
Business (173 entries)
CFA (3 entries)
China (5 entries)
Climate Change (3 entries)
Colorado (20 entries)
Denver (12 entries)
Design (4 entries)
Economics (39 entries)
Education (6 entries)
Electoral College (1 entries)
Environmentalism (3 entries)
Europe (0 entries)
Flying (2 entries)
Foreign Affairs (1 entries)
General (89 entries)
Gun Control (2 entries)
Health Care (7 entries)
Higher Ed (7 entries)
History (8 entries)
Home Improvement (1 entries)
Illegal Immigration (35 entries)
Internet (4 entries)
Israel (57 entries)
Jewish (49 entries)
Judicial Nominations (12 entries)
Katrina (0 entries)
Literature (1 entries)
Media (37 entries)
Music (3 entries)
Photoblogging (32 entries)
Politics (152 entries)
Porkbusters (5 entries)
Radio (16 entries)
Religion (1 entries)
Reviews (8 entries)
Robed Masters (4 entries)
Science (1 entries)
Sports (9 entries)
Taxes (2 entries)
Transportation (6 entries)
Unions (1 entries)
War on Terror (180 entries)
my other blogs
Three-Letter Monte

Rocky Mtn. Alliance
Best Destiny
Daily Blogster
Geezerville USA
Mount Virtus
Night Twister
Rocky Mountain Right
Slapstick Politics
The New Conservative
Thinking Right
View from a Height

other blogs
One Big Swede
American Thinker
Meryl Yourish
NRO Corner
Little Green Footballs
No Left Turns
A Constrained Vision

business blogs
Accidental Verbosity
Assymetrical Information
Carnival of the Capitalists
Cold Springs Shops
Commodity Trader
Coyote Blog
Different River
Everyone's Illusion
Fast Company Blog
Financial Rounds
Freakonomics Blog
Management Craft
Trader Mike
Carnival of the Capitalists Submission

business data
Inst. Supply Mgmt.
St. Louis Fed Economic Data
Nat'l Bureau of Economic Research
Economic Calendar
Stock Charts

colorado blogs
Pirate Ballerina
Pagan Capitalist
Boker Tov, Boulder
Colorado Pols
Jeff Sherman

<-?Colorado BlogRing#->

sites, not blogs
Thinking Rock Press
 help israel
Israel Travel Ministry
Friends of the IDF
Volunteers for Israel
Magen David Adom
 1939 World's Fair
1939: The Lost World of the Fair
The New York World's Fair: 1939-1940
The Last Great Fair by Jeffrey Hart
Iconography of Hope (U.Va.)
Images From the '39 Fair
Tour the 1939 New York Fair
Powered by
Movable Type 3.2

« Thinking Outside the Lox | Main | For Big Arbitron Numbers... »

The Monetary Crunch - Act III

The monetarists have been hard on the Fed. But understanding why the Fed screwed up 8 years ago or ever 4 years ago is different from understanding what it's trying to do now.

First, everyone go back and re-read (or re-watch) Milton Friedman's explanation of the Great Depression in Free to Choose. Then read remarks by the-Fed Governor Ben Bernanke on the subject. (For dessert, read this article by Princeton professor Ben Bernanke arguing that central bankers shouldn't move interest rates in order to affect stock prices.)

Now with your homework done, we're ready to discuss this stuff, er, rationally. Remember that the monetary aspects of the Great Contraction were essentially a three-act play. In 1928, the Fed, led by NY Governor Ben Strong, left out the punch bowl by keeping rates low. By 1929, the Fed had tightened policy, and was bursting the stock market bubble. But by 1931, the Fed, in a misguided attempt to keep the country on the gold standard, raised interest rates again, furthering the contraction. (A paper by then-Princeton economist Ben Bernanke shows that countries' recoveries were a direct result of going off gold and reflating.)

So here we are in the early 2000s. Act I - Greenspan leaves out the punchbowl, possibly partly in response to the withering criticism he incurred in 1996-1997 when he tapped the brakes. Act II - Bernanke begins to tighten incrementally, not so much to bust the bubble as to bring it down gently. Whether such a thing is possible remains an open question.

What Bernanke is desperately trying to do is to avoid a repeat of Act III. He's not trying to prop up stock prices, though access to credit markets will have that effect. He is trying to prevent another Great Contraction, where nobody lends to anyone else, and the underlying economy suffers mightily. And anyone who thinks that anything else is going on here simply doesn't know what he's talking about.

It's possible that this will work, and it's possible that it won't. Certainly the Fed has been pursuing this policy for over a year now, and the financial crisis has rolled on to clobber bigger and bigger institutions. It may well be that administering the medicine while the patient is still contagious simply won't work. It may be that the risk of moral hazard creates more problems than it solves. And it may be that - with LIBOR jumping up this morning - the credit markets will seize up, anyway.

None of this means that what the Fed is doing now is the right - or the wrong - thing. It is to say that it's trying to do something different from what it did 80 years ago, and maybe we ought to at least be pleased about that.


Excellent post, but the link for the Free to Choose episode on the Great Depression does not work. Go to and select Episode 3 under the Free to Choose Original 1980 series to watch the episode.

Post a comment

(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)


Power, Faith, and Fantasy

Six Days of War

An Army of Davids

Learning to Read Midrash

Size Matters

Deals From Hell

A War Like No Other


A Civil War

Supreme Command

The (Mis)Behavior of Markets

The Wisdom of Crowds

Inventing Money

When Genius Failed

Blink: The Power of Thinking Without Thinking

Back in Action : An American Soldier's Story of Courage, Faith and Fortitude

How Would You Move Mt. Fuji?

Good to Great

Built to Last

Financial Fine Print

The Day the Universe Changed


The Multiple Identities of the Middle-East

The Case for Democracy

A Better War: The Unexamined Victories and Final Tragedy of America's Last Years in Vietnam

The Italians

Zakhor: Jewish History and Jewish Memory

Beyond the Verse: Talmudic Readings and Lectures

Reading Levinas/Reading Talmud