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Perry Mehrling: Fed did massive QE during WWII

January 19, 2011

Perry Mehrling wrote a fantastic book about Fisher Black.  It explains not just the ideas of Mr. Black, but also “The idea of Finance” It really is a great book, and a “must read” if you want to understand just what the hell happened over the last few decades.

Perry has a new blog, and I am really interested to see how this works out for him.  He is a fantastic writer, plus has a skill and interest set that should prove very compelling.  Then, he is also working at a time when these issues and questions are front and center in many peoples mind. So far, his posts have been great.

One of his first posts contains some downright juicy information:

Exigencies of war finance soon shifted the focus of the newborn Fed, and the Act was accordingly amended. During both World War I and World War II, the Fed pegged the price of Treasury debt, and expanded its balance sheet as necessary to absorb any excess supply that was not taken up by private buyers.

Does that kind of emergency intervention sound familiar? It should. [Italics Mine]

Wow! I mean double Wow!  The Fed did QE before, during the big one, during a huge international emergency.

From Mr. Merhlings summary, it wasn’t even just QE where they buy bonds, but rather direct interest rate targeting on the long end of the curve.  But despite this, there was no post WWII inflation.

This is what Warren Mosler says over and over: Fed actions are about price, not quantity.

This is MMT in action.  The Fed has nearly complete power over the Treasury yield curve, but chooses not to exercise it.

So this new round of QE since the crisis has historical precident, and ended with the lowest levels of inflation in the last 120 years for the U.S.

Here is Warren saying that Bernanke finally got it right. Bernankes statements on 60 minutes caused an uproar across the world, because he said basically the same thing. The Fed actions are about price and not quantity.



Categories: Main
  1. January 19, 2011 at 2:57 pm


  2. TC
    January 21, 2011 at 11:17 am

    Hi Warren!

    MMT just reflects the reality of the system we designed. Not hard to believe it works when we want it to.

  1. February 21, 2012 at 6:10 pm
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