Part 8/14:
During the crisis, policymakers reacted with familiar tools: slashing interest rates to near zero, purchasing government securities, and increasing bank reserves. Yet, these measures mirrored the responses of the 1930s during the Great Depression, as noted by interventions in both periods had similar effects—deflationary money, not inflation.
Ben Bernanke, then Federal Reserve Chair, recognized that the system lacked understanding of the Eurodollar system's inner workings. Because of this knowledge gap, the Fed's efforts were akin to "throwing darts in the dark," trying to patch a system they did not fully comprehend. The result: persistent liquidity shortages, deflationary pressures, and an inability to achieve full recovery.