The echoes of the 1930s are loud, and will become louder as combined monetary and fiscal contraction entrench depression.

But monetary contraction poses a serious danger.

"No action, more baby steps, or worse, monetary contraction, will without a doubt in my mind lay a killing frost over the economic spring that President Clinton is trying to force."

This forced shift into a currency whose supply was limited by nature, unable to expand with demand, caused a series of economic and monetary contractions that plagued the entire period of the Long Depression.

Even the alleged "monetary contraction" never took place, the money supply increasing by 2.7 percent per year in this period.

Congress decided on a severe monetary contraction to lower the price level so they could reinstate the gold standard during the Contraction Act of 1865 before easing the policy in 1868.

Euroland's policies of synchronized fiscal and monetary contraction have pushed the region into recession, and therefore into deeper debt stress.

One contributing policy that reversed reflation was the Banking Act of 1935, which effectively raised reserve requirements, causing a monetary contraction that helped to thwart the recovery.

Bad things do happen when the Fed is in inflation-fighting mode: the monetary contraction that began in 1979 eventually drove the unemployment rate into double digits.

Economists William D. Lastrapes and George Selgin, conclude that the check tax was "an important contributing factor to that period's severe monetary contraction."