Wednesday, October 29, 2008

Where has Bernanke gone wrong?

Where? "In the area of fundamental economics. Bernanke does not understand what money is. He and his countless watchers in the financial press talk about “liquidity,” not money. Bernanke can create all the “liquidity” he wants, but he will not create one cent of real money. He can’t because real money emerges on the market, not from FOMC policy decisions.

"To be sure, what comes out of the Fed’s powwows is something that functions like money, and therein lies a big error. For at least the last three centuries economists have had ample evidence that fiat money -- another name for the paper government orders us to use in exchange for real goods and services -- has a short lifespan."

From my article, "Bernanke and the Holy Grail."

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