Friday, April 25, 2008

Bagehot's Lessons for the Fed

An interesting economic analysis and history lesson. This chap Bagehot, whom I have never heard of, analyzed foreign and domestic "drains" on the English economy in 1873. His proposed solution for the economic malady of capital flight and the seizing of internal markets was to raise interest rates and to make liquidity available.

It is amazing how remarkably similar the conditions Bagehot described are to today's economic conditions in the US. Now, I have no idea whatever how Bagehot is looked upon by people other than the piece which appeared in today's WSJ. Perhaps other consider him a quack, a minor-league thinker, a nobody. I don't know. I do know I have never encountered the name before. And what I read is fascinating.

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