Headline April 10, 2016/ ''' *THE GREAT DEPRESSION - THE GREAT RECESSION* '''

''' *THE GREAT DEPRESSION - 

THE GREAT RECESSION* '''

EVEN GREAT ECONOMISTS   -usually work with large sample of data, so they are always in a terrible bind, when it comes to depressions.

There simply haven't been enough to yield any form of predictable patterns. When the world stood on the precipice in  2008, its leaders had only the 1930s as a template.

Today they congratulate themselves on having avoided  another terrible and Great Depression. Were they right to?

Barry Eichengreen argues No.

Their reading of the  1930s, he writes, is simply incomplete, often erroneous and has led them to settle for weak or no growth and for too-timid reform of their financial systems.

Mr. Eichengreen, of the  University of California, Berkeley, recreates the last century's two great episodes of Financial instability with compelling portraits of bankers and policymakers and accessible theoretical explanations.

His retelling of America's and Europe's recent crisis adds little to earlier accounts, but his version of the  1930s is rich with detail and myth busting insights.

The Great Depression is often blamed on central bankers who stood by and let their banks fail. 

In fact, for the first year, the Fed filled its lenders-of-the-last resort job as intended, quickly injecting cash into banks after the stockmarket crashed, and ring fencing healthy banks with loans when weaker banks failed.

The real failures came later. In 1931, Austria's government had to let its biggest bank collapse because it couldn't meet foreign powers' conditions for a loan. 

*Gold fled Austria, then Germany, then Briton  and finally America*. Governments responded with monetary and fiscal austerity. 

The resulting hardship provoked political revolt. Royal Navy sailors protested over proposed pay cuts and Germans elected communists and Nazis.

Many of these events repeated themselves  80 years later. Ireland went bust guaranteeing its oversized banks' liabilities, much as Austria did in 1931. By letting Lehman Brothers fail in 2008, in order expunge the moral hazard from earlier bail-outs, American officials reprised the decision to let Guardian Trust fail in 1933.

Today's officials did learn some important lessons from the 1930s. 

Ben Brananke chairman of the Fed and himself a Great Depression scholar, was quick to lend to Europe when its banks were in desperate need of dollars. 

Most rich countries decided to enact fiscal stimuli in the early years of the crisis.

But in responding so well to the initial instability, ''success thus became the mother of failure,'' Mr. Eichengreen charges. On fiscal policy, he is certainly correct.

Within a  a couple years, America, Britain and  Europe had all pivoted from stimulus to austerity. Unlike their forebears, they couldn't blame the gold standard. 

Rather, officials were motivated by misplaced fear of bond market vigilantes, desire for a smaller state, or, in Europe's case, an insistence that profligate governments tighten their belt in exchange for support.

But Mr. Eichengreen at times stretches the facts to fit his narrative. 

He accuses the Fed of keeping monetary policy too tight because of a preoccupation with inflation; but it enacted several rounds of unconventional stimulus.

Because the last crisis was less severe than the Depression, bankers were able to hold firm in resisting radical reform of the financial systems.

Yet Mr. Eichengreen does not explain what more radical reform would accomplish; if anything, tougher regulations of banks would probably hold back their lending, which would make the recovery even weaker. 

Mr. Eichengreen wisely acknowledges that history has many, often conflicting, narratives which make it an imperfect guide to the present.

This guarantees that when the crisis hits, the world will find brand new mistakes to make. 

Hall of Mirrors: The Great Depression, the Great Recession, and the Uses -and Misuses    -of History, by Barry Eichengreen is great work.

With respectful dedication to the Leaders, Students, Professors of the world. See Ya all on !WOW!   -the World Students Society and the Ecosystem 2011:

''' Root Causes '''

Good Night and God Bless

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