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The Fed Should Inflate to End the Financial Crisis? It Just Ain't So!

The current housing and financial crisis has many people blaming "greed and market forces" for unleashing a panoply of evils on the unsuspecting middle class. This has led to many bad proposals to solve the crisis, such as the April 14 Wall Street Journal op-ed "The Inflation Solution to the Housing Mess" by John Makin, a visiting scholar at the American Enterprise Institute.

His theme: "In my view, the least bad option is for the Federal Reserve to print money to help stabilize housing prices and financial markets. Yes, use reflation to soften the pain for Main Street and Wall Street." Makin justifies this proposal by claiming that a continued drop in housing prices will lead to the ...

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