K, so basically Ron Paul started ranting a little, lol. Anyways, he brought up the debate between the Austrian school of thought and the Monetarist/Chicago school of thought...the Austrian economists believed that the Fed's inflation of the 1920s made a contraction necessary...and that without that inflation, none of the deflation would have happened because inflations tend to promote investments that are not normally viable (cheap credit means lower interest rates they gotta pay back, so ppl can make investments with rates of return that normally wouldn't be profitable). The Monetarists beleived that it was the deflation that caused the Great Depression. I personally, am not quite sure which is true or if there is truth to both of them. Yes I believe the Austrian version is true but at the same time, I'm not so sure that you could ever possibly have a sudden and unexpected decrease in the money supply without causing a recession.

http://www.youtube.com/watch?v=mhbKpg7jo-g



The interesting thing is that Bernanke, like many folks I've been hearing lately, is that Friedman said the Great Depression was caused by bank failures....however if you listen to Friedman's explanation, it wasn't the bank failures just cus banks were failing...it was because a proper role of the Fed is to supply banks with money to give to people that wanna withdraw their cash when a run occurs on a bank. Why? To restore confidence and so people can have their money. Then when people put their money back into the banks, the banks then pay the Fed back.

Here's a nice website with a series called "Free to Choose" which was hosted by Milton Friedman in the 1980s. It's pretty gangsta, if you ask me. (finish reading this blog first though so you can click on the link to the article at the end, lots shorter than the 10 episodes of Free to Choose, so you can read it before watching the vids, lol)

http://ideachannel.tv/


Also, Bernanke mentions the book "A Monetary History of the United States"(though he doesn't mention the name...this is the book Milton Friedman and Anna Schwartz worked on together, which I bought recently). Interestingly enough, Anna Schwartz herself mentioned recently in an interview that Bernanke is "fighting the last war"...meaning he's doing what the Fed SHOULD have done during the Great Depression, when there WAS a liquidity crisis....but that today is not cause by banks having to supply people with their money cus of bank runs. Today, banks don't konw who's solvent(who can pay their debts) and therefore dont' wanna lend as much. Here's a link to that interview(i felt it was pretty awesome)

http://online.wsj.com/article/SB122428279231046053.html


So there you have it folks. Pretty interesting stuff. As some of you know, I like economics and get pretty excited about it. It's important stuff to know. Remember, as Milton Friedman said

"Human, and political freedom, has NEVER existed, and CANNOT exist, without a large measure of economic freedom." You gotta know not just principles, but also facts and evidence so as to enable the best outcome in your life, and the lives of others, possible.

=)


Also, if you wanna hear the entire (3 hours or so) vid of the "House Financial Services Committee hearing on the Fed's efforts to provide liquidity in the financial industry" you can go here.

http://www.cspan.org/Watch/watch.aspx?MediaId=HP-R-15283