The Great Depression is the precedent. The money supply dropped by a third, prices for everything dropped dramatically, and much of the labor force was thrown o

The Great Depression is the precedent. The money supply dropped by a third, prices for everything dropped dramatically, and much of the labor force was thrown out of work. The general understanding today held by the Fed is that it was because the Fed failed to create new money and inject it into the banking system to prevent a systemic collapse.