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by nerfhammer
5716 days ago
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Sorry, I don't think that is accurate. Quoting wikipedia: "[Friedman] claimed that, if the Fed had provided emergency lending to these key banks, or simply bought government bonds on the open market to provide liquidity and increase the quantity of money after the key banks fell, all the rest of the banks would not have fallen after the large ones did, and the money supply would not have fallen as far and as fast as it did. With significantly less money to go around, businessmen could not get new loans and could not even get their old loans renewed, forcing many to stop investing." Intervening to prop up failing banks and creating money to buy bonds? Sounds a lot like... TARP. |
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There's a difference between propping up a failing bank (which I believe Friedman would be against) and providing liquidity to the banking system when a bank run occurs on a well-capitalised bank (which I believe he would support).
If you watch the Volume 3 "Anatomy of Crisis" about the depression, when a run on the Bank of the United States occurred despite it's being a sounds entity (when it was liquidated it paid back 92.5 cents on the dollar). It's failure created a domino effect according to Friedman. So he supported providing liquidity in that scenario.
I don't believe Friedman would support QE[2] when the banks are well capitalised. My interpretation of his ideas is that he supported a stable money supply, and Friedman was definitely against printing money in general.
That being said, the ideas I'm referencing were expressed in a time when inflation was a big problem.
I wish he were alive today, I would be very interested in his opinion.