What, You Mean It Works? (Krugman vs. Estonia)

I’ll be damned…..

Estonia has followed (as Krugman grudgingly admits) a roughly similar path: After a Great Depression–scale drop in GDP, the government attempted to keep the budget balanced (partly in the hopes of joining the euro) and has since seen 6 and 7 percent economic growth, though this has stalled recently, since their economy is heavily dependent on exports to the laggard euro zone.


Oh, it worked here in America too when it was done.

In a world with The Fed, believe it or not.

It was 1920/21. The Fed pulled excess liquidity in the middle of a nasty deflationary recession (prices fell by 15% at the retail level and 37% (!) at wholesale; the most-severe for any comparable period in American history) and The Federal Government balanced the budget.

The result?  The bankrupt institutions (including banks) were flushed and within 18 months the economy cleared and roared back — not only returning to full employment but posting a gain in industrial production of an astonishing 60%!

“More debt” to solve a debt problem does not work.

Yanking the rug out from under the counterfeiters of the currency who emitted bogus credit and thus led to the crisis in the first place does.

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