[Borodog]

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All the chicken-little-OMFG-The-Sky-Is-Falling-We're-Already-In-The-Next-Great-Depression talk has be bothered to the point that I did a little review about the Great Depression.

Namely, I had an eye toward debate about the causes. There are some important differences that I think warrent discussion.

First and foremost - Many on this board believe in the assertion that the Great Depression was caused by a contraction of the money supply.

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Uh, no? I don't know anyone on these boards that believes this. Monetarists will tell you that the Fed caused the Great Depression by failing to open the spigots even wider, but the Austrians point out that the original recession was caused by the bursting of an *inflationary* economic bubble. The depression was caused by expansion of the money supply in the 1920s, not its contraction.

Prices were stable in the 1920s (the holy grail of Friedmanite monetarists) in the face of exploding gains in productivity only because of Fed expansion of the money supply. The correction was inevitable. The same thing happened 10 years before, with the extremely deep and sharp recession that resulted from the huge expansion of the money supply the Fed created to help finance World War I. The difference between the two recessions, one deep and sharp and short and forgotten, and the other one deep and long and painful and of mythic proportion in our history, was that government was too slow in reacting to be able to do anything to "help" during the first one. They were better prepared for the nextone, though. Thanks a lot.

The money supply did contract by about a third at the begining of the Great Depression, but that was only due to bank failures *after* the beginning of the recession.

The severity and length of the depression waere then increased by the disastrous policies of Hoover and then FDR to hold wages and prices high in the face of a much smaller money supply, a recipe for mass unemployment and privation.

The rest of your analysis seems to be based on equally flawed economic and historic understanding, or on nebulous differences that are somehow supposed to negate the fact there are still trillions of dollars of malinvestments buried in the economy, Fed policy is only making it worse, and there is a deluge of dollars waiting to pour in when the dam finally breaks.

The collapse of the international fiat money system is inevitable quite simply because it is unstable, and becomes more so over time. It has been unstable from its advent. The first massive intervention required to save it, confiscation of the national gold supply, is not available. The preferred intervention technique of the past 35 years, gold dumping by central banks and the IMF, is no longer available. They don't hold the gold enymore. That card is about played out. Governments cannot constrain themselves from printing money to feed their rapacious appetites, and the inevitable reaction to the loss in purchasing power of the fiat currency is to flee to gold. It has happened before, it will happen again, and this time, perhaps the next, it cannot be stopped.