Milton Friedman advocated Quantitative Easing to prevent the Great Depression

[Martinghoul]

Quote from ralph00:
I'm not concerned with bank shareholders or their creditors (other than depositors). You, as board spokesman for the banker-centric regime in place here and across the pond are.

In the 30s, commerce stopped. Businesses and individuals lost the ability to pay for anything overnight as the money in their accounts disappeared. That was never at risk here. Bank deposits - guaranteed. Money markets - guaranteed.

I'm not saying there wouldn't have been a painful credit squeeze and near-depression, because there would have been (and should have been). Now we're out of it, but have transferred the price to those who can least afford it, by sending the price of necessity items through the roof and not letting asset prices clear to where folks can afford them on their newly reduced incomes.

I am not an advocate for the banks. If you have read my comments, you would know this.

My point is that in the '08 crisis, deposits (and depositor insurance) didn't matter and commerce was going to stop. Modern businesses and individuals rely on short-term credit mechanisms (e.g. commercial paper, letters of credit, etc) and, once that system freezes, it's EXACTLY equivalent to money disappearing from your account. And that was precisely the risk that the various Fed programs were supposed to address (btw, the money mkt guarantee, MMIFF, was only put in place once the sh1t hit the fan).

As to your last point, you seem to be awfully cavalier about it. How can you be certain that the "painful credit squeeze and near-depression" doesn't turn into a depression right and proper? What gives you the magical power to draw the line between what "should have been" and the worse outcome that you believe was worth preventing? I am also quite confused about the transfer of the cost onto people who can ill afford it. Did the various crisis measures transfer these costs or are you referring to later policies? Also, who are these people who can least afford the costs?

 

[Debaser82]

Quote from EMRGLOBAL:

Well EMU is raising it's rates ahead of the FED.

The only Fed Chair that will dissent against QE3 is the DALLAS FED CHAIR.

So, lets see what happens in JUNE when the FED stops buying up BONDS.


Oil at 106 and climbing.

We are closer to falling back in the hole than ever before. IE: what the pundits would call a "Recession" what I would call the smoke clearing and the country waking up to the fact we are in Stagflation, which is far worse than a depression and will last a decade if not longer.

It's the same actually.


Say you have 1000 banks and 500 of them are allowed to fail.

Free markets.

Say you have 1000 banks and none of them are allowed to fail through inflation.

Money drops in value by 50%.



Both of them hit as many people as the other and there is no pain free fix.

Systems can only be strengthened after a severe hit is taken not during the hit itself.

 

[emg]

If USA follows Milton Friedman economic principle, we would still be in depression worldwide.

Free market with common sense regulations work well.

 

[Daal]

Quote from zdreg:

you and people who share your opinion have never been able to show that deflation creates unfavorable effects. either you are mouthing your liberal professors or articles by clueless liberal reporters.

milton friedman had a rule of allowing money supply to grow at a steady 3 per cent year. he never suggested printing money in the quanities generated by the QEs which is the path of Zimbabwe etc.

You might want to check out money supply growth. Friedman advocated M2 as the best measure, Bernanke through QEs has been able to keep M2 growing at this kind of rate since the crisis started. Yoy is currently at 4.1%, even though it includes both QEs in it. Monetary base is not the same as the money supply

 

[thriftybob]

Quote from olias:

I must have missed that

You are going to get to live through it and learn why the founders requred in the Constitution that money be gold and silver coin.

Just think back and try to imagine how bad things would have been if you had your money in Continental Dollars.

"Paper is poverty" - Thomas Jefferson

 

[zdreg]

Quote from Kassz007:

What the hell do you call the Great Depression?

most deflations do not result in the Great Depression.

 

[RedDuke]

Quote from Martinghoul:

Why do economic agents (people, companies, govts) borrow?

I understand the need of borrowing. However, it is double edge sword, if meaningful growth without huge debts is not possible, the time when the music ends will be horrifying.

 

[Martinghoul]

Quote from RedDuke:
I understand the need of borrowing. However, it is double edge sword, if meaningful growth without huge debts is not possible, the time when the music ends will be horrifying.

But where do you make the leap from borrowing to "huge debts"?

 

[thriftybob]

Quote from Martinghoul:

But where do you make the leap from borrowing to "huge debts"?

Its a HUGE beyond anyone's wildest imagination debt Ponzi.

Whoever waits to collect will get nothing of value because there WAS NOTHING of value saved. As with ALL Ponzi schemes, only those who collect early in the game will get repaid.

Imagine having a budget surplus of $100 Billion per year for the NEXT 140 YEARS!

*THAT* is what it would take to pay off just the debt run up since Reagan, and THAT assumes NO interest at all.

 

[Visaria]

Quote from piezoe:

In a heavily indebted society, zdreg, especially where much of the debt is held externally, the problem with deflation is that debtors will end up returning much more buying power to their creditors than they borrowed, thus increasing the real cost of borrowing. This happened in the Great Depression, and those with cash and few debts were able to buy assets very cheaply. The rich got richer, much richer. However those with mortgages and substantial debts lost nearly everything in many cases, as they were foreclosed on..

The situation today would be even worse were the US to suffer any substantial deflation in the overall economy. Look what deflation in just one sector, Real Estate, has caused!

High inflation is just as bad of course, and it hurts the poor far more than the wealthy.

The Fed is trying to walk a tightrope between inflation and deflation by aiming for mild inflation. Time will tell how well they succeed.

Actually, the rich did not become richer as you contend, many of them were either in the stock market, which kinda didn't do too well or leveraged up with debt. Many former tycoons had to try and sell their estates to raise cash, most were unable to do so because no one could afford the maintenance costs. They literally had to lock the gates and walk away. Of course some of the "rich" even commited suicide.

I also recall reading that the number of millionaires for income tax purposes fell from a few hundred in 1928 to about 3 in 1930.