News Analysis: A lesson rooted in the Great Depression
Will future historians write about the Great Depression of the 2000s as they did about the one in the 1930s? The world's central bankers sought to answer "no" Thursday - resoundingly, though not definitively.
With a huge infusion of cash, the U.S. Federal Reserve, joined by its fellow central banks around the globe, unleashed their most forceful volley of financial firepower yet. The goal was to persuade a convulsing banking system that there will be no shortage of money to meet essential obligations, now or in the future.
The $180 billion in additional funds they committed Wednesday was only the start.
That is in sharp contrast to what happened in the 1930s when the Fed stood idly by as waves of defaults drained money from the banking system, starved the American economy of credit and eventually dragged Europe down as well.
This time around, central bankers are purposefully searching for strategies to avoid that chain of events. And unlike the approach in the 1930s, it is a global effort, driven by a close-knit community of central bankers who are aware that the mistakes of the Depression era erased their credibility for years afterward.
"The need to avoid that next depression plays a big role in U.S. policy making," said Paul de Grauwe, a professor of international economics at the Catholic University of Leuven in Belgium. "But it is also present in Europe because we have experiences with bank crises in a number of countries. It may not be as intense, but it is not absent."
Read entire article at International Herald Tribune
With a huge infusion of cash, the U.S. Federal Reserve, joined by its fellow central banks around the globe, unleashed their most forceful volley of financial firepower yet. The goal was to persuade a convulsing banking system that there will be no shortage of money to meet essential obligations, now or in the future.
The $180 billion in additional funds they committed Wednesday was only the start.
That is in sharp contrast to what happened in the 1930s when the Fed stood idly by as waves of defaults drained money from the banking system, starved the American economy of credit and eventually dragged Europe down as well.
This time around, central bankers are purposefully searching for strategies to avoid that chain of events. And unlike the approach in the 1930s, it is a global effort, driven by a close-knit community of central bankers who are aware that the mistakes of the Depression era erased their credibility for years afterward.
"The need to avoid that next depression plays a big role in U.S. policy making," said Paul de Grauwe, a professor of international economics at the Catholic University of Leuven in Belgium. "But it is also present in Europe because we have experiences with bank crises in a number of countries. It may not be as intense, but it is not absent."