The Forgotten Depression of 1920

Do you think government is doing to little to fight the recession/depression? Do you wish for "more stimulus" and "government spending" to revive the economy? Do you think that the Great Depression was won with deficit spending and government programs (such as World War II)?

Think again. Here is the real lesson to be learnt from the history of booms and busts during the Century of Central Banking - the forgotten depression of 1920, where government was shrunken, deflation was allowed to correct the malinvestments of World War I, and the free market was allowed to restore economic order on its own pace (which is pretty fast I might add!).

The Federal Reserve's activity, moreover, was hardly noticeable. As one economic historian puts it, "Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction." By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and it was only 2.4 percent by 1923.

So what are we waiting for? Let the free market clean up the mess we are in. The sooner, the better! Or, so says sound economic theory and history in one screaming voice.