Anorak News | You Want to Know What’s Happening In the Eurozone….Yes, I Knew You Did

You Want to Know What’s Happening In the Eurozone….Yes, I Knew You Did

by | 29th, November 2011

DO you want to know what’s happening in the EuroZone? Well, if you really want to know what’s happening over in Euroland then you should read this book:

A Monetary History of the United States, 1867-1960
Milton Friedman & Anna Jacobson Schwartz

Admittedly at near 900 pages including charts and references it is pretty hard going. But if you really want to understand, that’s where you need to go.

As and when you read it though you’ll need to remember a point. When Friedman starts talking about what the Federal Reserve did in the US before and during the Great Depression, he’s actually listing the whole set of things that they got wrong. When he says they made an error here then that’s exactly what the European Central Bank has been doing. Like, for example, raising interest rates because of the risk of inflation. We have a risk of deflation, of a depression, in front of us, not a risk of dangerous inflation.

And when Friedman implies that here’s the decision where the Fed really fucked up you need to realise that that’s what the ECB is doing in double, in spades.

In short, the book was written as an explanation of what not to do, as a warning, in our current situation. The ECB is using it as a guide to what to do.

The Federal Reserve and the Bank of England have both understood the book and its message: this is why we’ve been having QE, or quantitative easing. So that we don’t do the “here’s where the Fed fucked up” bit again. The ECB isn’t doing QE and that is where they’re fucking up.

Still those little villas by the Med are going to be dirt cheap in a couple of years so what do we care about it all, eh?

Posted: 29th, November 2011 | In: Money Comment | TrackBack | Permalink