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Blinder: Bernanke Not Likely to Slam on Brakes

By Dan Weil   |   Monday, 18 May 2009 11:38 AM

Some experts warn that the massive fiscal and monetary stimulus adopted by the government and Federal Reserve will spark an inflation crisis.

Former Fed Vice Chairman Alan Blinder disagrees.

He argues in a New York Times opinion piece that reversing the stimulus poses a greater danger. Such a move would throw the economy into a more damaging downward spiral, he says.

Blinder compares our situation to the 1930s. The economy rebounded smartly in 1933 to 1936 from the Depression that began in 1929, thanks to fiscal and monetary easing, he explains.

But then the Roosevelt administration and the Fed tightened policy in fear of inflation. And that pulled the economy back underwater.

“The moral of the story should be clear,” Blinder writes.

“Prematurely changing fiscal and monetary policies — from stepping hard on the accelerator to slamming on the brake — can be hazardous to the economy’s health.”

As for the Fed, Chairman Ben Bernanke “is a keen student of the Great Depression who will not allow the Fed to repeat the errors of 1936 to 1937,” Blinder says.

And as for President Obama, “I hope and believe that… [he] will not transform himself from the spendthrift Roosevelt of 1933 to the deficit-hawk Roosevelt of 1936 — at least not until the economy is back on solid ground.”

Surprisingly enough, Blinder has an ally in magazine publisher Steve Forbes when it comes to the Fed.

“The Federal Reserve should be pumping out a lot more liquidity,” he told CNBC recently.

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Some experts warn that the massive fiscal and monetary stimulus adopted by the government and Federal Reserve will spark an inflation crisis.Former Fed Vice Chairman Alan Blinder disagrees. He argues in a New York Times opinion piece that reversing the stimulus poses a...
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