A lesson from the Great Depression

Central bankers have to be realistic about the political environment in which they operate.  All the central bank cooperation in the world can’t solve a problem of imbalances, if the politicians don’t decide to cooperate too.  And betting the economy on the theory that the politicians just *have* to cooperate is not good central banking.

Central bank policy needs to take into account the possibly of political failure — even when that failure is “unthinkable”.

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