Is the US facing another Great Depression?

New Federal Reserve chief Ben Bernanke and many other economists blame the Fed for the Great Depression of the 30s. Few people consider that the preceding period of economic stability might have sewn the seeds for the crash that followed. But Dr Kurt Richebächer points out in the Daily Reckoning that the period leading up to the depression was one of world-wide credit expansion - just like today. Could today's credit boom have similar consequences?

In short the 1920s were an era of world-wide credit expansion. Its most spectacular phase was the large- scale financing of inflated security and real estate values, especially in the United States. Such overcapitalised values were not reflected in the price level indices, which has generated confusion. Both Lauchlin Currie and Friedman and Schwartz have insisted, as have many others, that there was no inflation in the 1920s, since 'prices' did not rise.

- Melchior Palyi, The Twilight of Gold, 1914-1936, 1972

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