If you’ve supported efforts to audit the Federal Reserve or questioned the Fed’s utility in staving off a second Great Depression, you might appreciate a new column from Mark Skousen posted at Human Events:
[T]he irony is that the Fed failed miserably in the 1930s in its first major test of serving as lender of last resort. As Milton Friedman concluded, the Fed acted ?ineptly,? allowing the money supply to collapse by a third. ?Far from the depression being a failure of the free-enterprise system, it was a tragic failure of government.
Since then, the Fed has erred on the side of inflation in fear of causing another Great Depression and has failed to control inflation or the business cycle.
Now, 100 years later, we find ourselves in a similar predicament. In 1907, we suffered a banking panic. In 2008, we suffered the Financial Crisis of 2008. The cause: The Fed?s easy-money policies and its failure to regulate the banking system properly, which it perpetrated by allowing subprime lending.
Now, Fed chairman Ben Bernanke (the new Benjamin Strong) says that he has learned the history lessons of Milton Friedman. In 2008-?09, he and the Reserve Board injected trillions of new dollars into the system to keep it afloat. Instead of falling, the money supply went through the roof.
No doubt Milton Friedman would have approved of this decision to save the banking system. But how would he feel about it now?
If Milton Friedman were alive today, he would oppose two major policies by the Fed. (I knew Milton Friedman, and was the last person to have lunch with him in San Francisco before he died in late 2006, and I can tell you that Ben Bernanke is no Milton Friedman.)
