Good and Bad Credit

At the conference to honor Milton Friedman's ninetieth birthday, Bernanke apologized to Friedman on behalf of the Fed for not pumping enough money to prevent the Great Depression:

"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."

Did Chairman Bernanke learn the correct lesson from the Great Depression?

In an article written by Frank Shostack, an adjunct scholar of the Mises Institute and chief economist of M.F. Global, he makes the distinction between Good credit (that which would be offered in a market economy with sound money and banking) and Bad credit (that which is made possible only through a system of central banking, artificially low interest rates, and fractional reserves). He goes though what credit really is and how the introduction of money doesn't alter the fact that credit is based on "real stuff".

Shostack argues that False credit expansion via central banking, artificially low interest rates, and fractional reserves, is an agent of economic destruction. And that the Fed and Treasury cannot fix the problem with "credit injection", they can only make the problem worse by diluting the pool of real credit. The best solution, He argues, is to do nothing (and allow the interest rate to reflect reality). If the pool of real savings is still growing, then doing nothing will allow the recession to be short lived and economic recovery to emerge as fast as possible.