It’s a tough blow to your ego when one of your heroes becomes one of your chief critics. So it must have been tough for Fed Chairman Ben Bernanke to see the famed economist Anna Schwartz beat up on his money-printing policies before she died last week at the age of 96.
Bernanke spent a great deal of his time crediting Dr. Schwartz for her wonderful book “A Monetary History of the United States,” which she co-authored with Milton Friedman. The book details the monetary mistakes that led in large part to the Great Depression, and Bernanke used its conclusions in part to justify his aggressive actions after the 2008 financial crisis.
Even Dallas Fed President Richard Fisher signed on to the Anna Schwartz bandwagon, telling me in an interview yesterday:
“I loved Anna Schwartz, She was one of the great monetary economists in history. And I wished we had listened to her words.”
So let’s listen to her words. Here’s what she told The Wall Street Journal in October 2008, just as the financial crisis began and as the Fed began its massive printing of cash…a money pump that now totals more than $2.7 trillion:
"The Fed 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 [uncertainty] that the balance sheets of financial firms are credible…the basic problem is the credit market. Lending freezes up when lenders are uncertain that would-be borrowers have the resources to repay them. So to assume that the whole problem is inadequate liquidity bypasses the real issue."
Remember, this was 2008. Since then the Fed has pumped even more liquidity into the system with little effect. Of course, Bernanke claims we would be in another Great Depression had he not acted as he did…a claim repeated by President Obama, for whom Bernanke has been very compliant.
Read Full Article