Back in January 2009, Joe Nocera of the New York Times gave a glowing review containing yet another restatement of the relentless fraud which holds that "economic orthodoxy" and the "straightjacket of the gold standard" caused and prolonged the Great Depression.
Besides, the central bankers were prisoners of the economic orthodoxy of their time: the powerful belief that sound monetary policy had to revolve around the gold standard. That is, each country’s reserve bank had to have a certain amount of gold in its vaults to back up its currency — and indeed, “all paper money was legally obligated to be freely convertible into its gold equivalent,” as Ahamed says. Again and again, this straitjacket caused the central bankers — especially Norman, gold’s most fervent advocate — to make moves, like raising interest rates, that would allow their countries to hold on to their dwindling gold supplies, even though the larger economy desperately needed help in the form of lower interest rates.Of course! Because Paulson allowed Lehman Brothers to default set off a contagion of failure around the world. Our problems were all caused by A LACK OF MORE BAILOUTS! What would we do without the NYT?
The central bankers of the 1920s and ’30s were flying blind; Ahamed makes that quite clear. They could only hope the moves they made would help the economy instead of hurting it. Sometimes they were right, but often they were wrong. We like to think that today we have a better grasp of the machinery that moves an economy — but do we? Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson were much quicker than the earlier lords of finance to throw money at the banking system to prevent it from collapsing, a lesson they learned from the inaction of the Federal Reserve in the 1930s. But Paulson also allowed Lehman Brothers to default, an event that set off a contagion of failure around the world.