In his Mises Daily article today, Frank Hollenbeck takes a look at the Recession of 1937 and its causes to shed some light on the Fed’s present reluctance to cut back on endless monetary “stimulus.”
By late 1936, The Fed started to get worried, and in March 1937 the chairman of he Fed, Martin Eccles, said “[r]ecovery is now under way, but if it were permitted to become a runaway boom it would be followed by another disastrous crash.”
In December 1936, the central bank began sterilizing the gold inflows so they no longer boosted monetary growth. This was a timid tapering by contemporary standards. Monetary growth slowed from 12 percent to essentially nothing. This was the equivalent of gently tapping on the brakes.