In particular, Milton Friedman had convinced many economists that depression prevention is actually a fairly simple task, which can be carried out by technocrats at the central banks that control national money supplies. According to Friedman, the Great Depression occurred only because the Federal Reserve failed to do its job in the 1930s; if it had acted to rescue troubled banks and prevent a fall in the money supply, catastrophe would have been avoided.
At a celebration of Friedman’s ninetieth birthday, Ben Bernanke, an eminent monetary economist and Depression scholar who would become Fed chairman a few years later, accepted this verdict: “You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”
Then crisis struck, and major central banks—the Fed under Bernanke’s leadership, the European Central Bank, the Bank of England—did everything Friedman said they should have done in the 1930s. Troubled banks were rescued; money supplies were sustained. And we got a depression all the same.
The chart depicting broad money growth indicates that either Krugman is willfully ignorant or is being blatantly deceptive!
And this happened at the time money demand was rising rapidly (velocity falling fast)!
Update: Krugman´s allegation is an example of Steve Hanke´s “95% rule“:
95 percent of what you read about economics and finance is either wrong or irrelevant.