Mark Thornton says Ben Bernanke is desperately trying to keep his promise to Milton Friedman and not "let" another depression take place:
The old monetarist tale of the Great Depression, thoroughly refuted in the Austrian literature, is that the Federal Reserve failed to provide enough inflation (i.e., money supply) when the market started to weaken and it allowed the money supply to collapse, and, as a result, the banks failed and the economy went into a tailspin of depression.
They believe that the Federal Reserve acted properly during the 1920s in maintaining price-level stability by providing the banking system with regular injections of money. This despite the fact that the decade was called the "Roaring Twenties," that unemployment was unnaturally low, and that anyone looking at a graph of the stock market could clearly see a bubble in the making.
The new chairman of the Federal Reserve, Professor Ben Bernanke, is a student of the Great Depression and has written extensively on the subject. He famously said (as vice chairman of the Fed) at Milton Friedman's 90th birthday, not to worry, Milton, "We won't let it happen again."
So now that he is chairman of the Fed, he faces the task of trying to clean up the housing bubble and prevent the economy from slipping into depression.
It's a daunting task and he is evidently dedicated to one tactic: inflation now and forever.
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