Strengthening Constitutional Self-Government

No Left Turns

Fed Up

Today’s Wall Street Journal features an interview with Anna Schwartz, Milton Friedman’s co-author in A Monetary History of the United States. Her conclusion? Bernanke is fighting the wrong war:

We now hear almost every day that banks will not lend to each other, or will do so only at punitive interest rates. Credit spreads -- the difference between what it costs the government to borrow and what private-sector borrowers must pay -- are at historic highs.

This is not due to a lack of money available to lend, Ms. Schwartz says, but to a lack of faith in the ability of borrowers to repay their debts. "The Fed," she argues, "has gone about as if the problem is a shortage of liquidity. That is not the basic problem. The basic problem for the markets is that [uncertainty] that the balance sheets of financial firms are credible."

Read the whole thing. 

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