Gerald O'Driscoll, a former senior Fed official and very able economist, recently said it best: "The central bank is like an arsonist watching a fire he set, expressing amazement at how such an event could have happened. The Fed created a moral hazard by first, implicitly, then explicitly promising to bail investors out of risky commitments. Former Fed Chairman Alan Greenspan promised to 'mitigate the fallout' from asset deflation. How does a central bank do that? By reflating asset prices, or, as Greenspan euphemistically put it in his 1999 testimony, 'ease the transition to the next expansion.'"
The Fed: Solution or problem? by Richard Rahn
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