The Monetary Policy And Civil War Reconstruction

Krugman discuss the Friedman et al US Monterey Policy and US economy from the Civil War Reconstruction Era . Friedman et al argues that the bank failures and the massive withdrawals of currency from the financial system that followed, significantly shrank the money supply (the total amount of currency and outstanding bank deposits), which greatly exacerbated the economic contraction. Friedman et al the Federal Reserve Bank for not keeping the supply of money steady, and not acting as lender of last resort, encourage the commercial banks keep going.

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We usually focus on the great fiscal error of 1937, as FDR decided that it was time to slash spending and reduce the deficit. But there was also a turn toward contractionary monetary policy: the Fed got nervous over the alleged inflation risks from the existence of large excess bank reserves, even though those reserves weren’t being lent out, and decided to sharply raise reserve requirements. F&S say that this caused the 1937-8 downturn,... Keep reading

This is another point the Liyban NTC argues to the US et al, unfreeze the money, must the economy keep functioning otherwise, going to chaos in Libyan economy after the war which no US et al wants. The large increase in excess reserves- the large seized Libyans freezing money around the world – as they belong to the Libyan People so after Gaddafi topples the money has to release to the next legitimate Libyan Government, that is a huge amount stock file money(now and will be 160 billions) for, exactly that will be cause the Libyan economic chaos(see the above chart – year 2008 financial crisis ) so the US et al have to unfreezing some of the money now so that prevent the Libyan economic collapses after the war. Again simple is beautiful the supply and demand wining strike.