Is Our Monetary Policy Too Loose?

Famed libertarian economist Milton Friedman blamed the depth and duration of the Great Depression on overly restrictive monetary policy. The Fed raised interest rates and choked off economic growth, putting the country and the world into a deflationary spiral that did not end until WWII.

We currently have interest rates near zero. The American dollar is hitting all-time lows. Despite this, economic growth is weak and demand for mortgages is low.

Ramesh Ponnuru says we’re not learning the lessons of Milton Friedman:

We don’t have loose money, and we haven’t during our entire economic slump. A big reason that slump has been so deep and long is that the Fed is keeping money tight: It’s not letting the money supply increase enough to keep current-dollar spending growing at its historical rate.
That view sounds crazy to a lot of people. They look at low interest rates, soaring commodities prices and an expanded money supply, and assume that these are clear indications of easy money. And sometimes these conditions do reflect monetary ease.
But not always. The late great Milton Friedman looked at Japan’s lost decade and grasped that its low interest rates were, counterintuitively, a sign of tight money: The Bank of Japan had choked the life out of the economy by keeping the money supply too low, and that’s what kept interest rates down.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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