What would Milton Friedman say about the $700 billion bailout?
This was selected as Best Answer Friedman would probably blame discretionary monetary policy since he has repeatedly advocated a fixed monetary growth. The logic would go something like: 1. Discretionary monetary policy permitted the Fed to lower the interest rate too far (which would not be possible if they had fixed growth in the money supply). 2. Artificially low interest rates drove up the price of various assets including housing. 3. Artificially high housing prices compounded by artificially low interest rates permitted excess borrowing. 4. Excess borrowing permitted homeowners to spend too much money, overheating the economy with their demand. Once interest rates increased back up to their “rational” level, the system unwinded with theses disasterous results. Remember, MBS were extremely safe investments until housing prices plumetted. === Incidentally, while the sequence of logic is strictly true, I don’t believe that a fixed monetary growth path would have avoided the fundamen
