Wednesday, October 15, 2008

Money Supply Contraction

In the Wall Street Journal, Andy Kessler writes:
...after the 1929 market crash and subsequent bank runs, 10,000 or roughly 40% of banks failed, $2 billion in deposits were wiped out and 30% of the money supply disappeared. So did a similar percentage of GDP. Today, bank deposits are mostly safe, but with $1 trillion in bank and Wall Street writedowns taken or soon to be taken on bad real estate securities, some multiple of that in money supply will vanish with the stroke of an accountant's pen. Restarting bank lending is the only way to top it back up.

The contraction in the money supply is what will trigger the depression. It must be avoided. Desperate times call for desperate meaures.