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The Masked Tulip

Credit Crisis Becomes Currency Crisis

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The trouble is, in Ben Bernanke, we have a Fed chairman who is convinced that the reason the US fell prey to the Great Depression in the 1930s is because the Federal Reserve didn’t cut interest rates fast enough. So far, none of the evidence to the contrary is convincing him it won’t work. I suspect Mr Bernanke is assuming that if rate cuts aren’t working yet, it’s because he hasn’t cut far enough or hard enough.

The trouble is, when you’re focused on avoiding one crisis from the past, another tends to rear up and bite you on the backside. Mr Bernanke may be about to find that the credit crisis is about to turn into a currency crisis.


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I prescribe a course of leeches.

OK the leeches didn't work, so obviously we didn't use enough leeches.

More leeches please nurse.

Oh, we've run out of leeches.

To extend the analogy - ".....and blood".


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I've said it before and I'll say it again: Bernanke has built an academic reputation on his hypothesis that the Great Depression could have been avoided through timely and appropriate intervention. He has lectured and written and spouted on for decades as to what that intervention should have been. He's not going to abandon his life's work now - he's going to be putting his theories to the test. And in so doing he is going to find out that those who "allowed" the Great Depression, weren't quite as stupid as he seems to think they were. He'll discover that a feedback loop once engaged is almost impossible to reverse - just as those who presided over the Great Depression discovered.

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