In short, the only way to avert the onset of the depression is to continue inflating money and credit. For only continual doses of new money on the credit market will keep the boom going and the new stages profitable. Furthermore, only ever increasing doses can step up the boom, can lower interest rates further, and expand the production structure, for as the prices rise, more and more money will be needed to perform the same amount of work. Once the credit expansion stops, the market ratios are re-established, and the seemingly glorious new investments turn out to be malinvestments, built on a foundation of sand. The extent of the credit expansion in the U.S. drew these comments several years ago by economist Kurt Richebacher.
Credit creation is completely out of control in relation to economic activity and domestic savings.
Fear of a 1929-style depression heavily impacts current monetary policy along with the widely held view that the big mistake in the 1930's was a lack of monetary easing. But analyst Douglas Noland strongly disagrees. Instead, depressions are the unavoidable consequence of reckless boom-time money and credit excess, rampant speculation and the resulting severe structural and economic distortions. At some point, bank reserves and 'liquidity' become virtually irrelevant to the greater issue of intractable economic imbalances and maladjustments, and the instability of debt structures. This was the case after the 'Roaring 20s,' and it is once again the case today.