On November 21, 2002, Ben Bernanke (then a Governor on the Federal Reserve Board) gave a speech before the National Economists Club in Washington, D.C. When listing possible Fed actions to cure any possible deflation in the future, Bernanke lists this possibility:
“Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt's devaluation.”
Can we look forward to Bernanke pulling “an FDR” in 2012?
Lindsey Williams seems to think so, as he stated in an interview this week with Alex Jones.