While the Federal Reserve has an explicit dual mandate to keep prices stable and maintain full employment, they have unofficially taken on new goals like maintaining financial stability. Bernanke, Yellen, and other officials have noted how traditional monetary policy is a limited and blunt tool to accomplish this goal, which is why the Fed has, in recent years, exercised and flexed its regulatory muscle.

Recognizing the calamitous erosion of incentives that would be brought about by a straight guaranteed-income plan, some reformers have advocated what they call a “negative income tax.” This proposal was put forward by the prominent economist, Professor Milton Friedman, of the University of Chicago, in his book Capitalism and Freedom, which appeared in 1962. The system he proposed would be administered along with the current income tax system.

According to traditional economics textbooks, the current monetary system amplifies initial monetary injections of money. The popular story goes as follows: if the central bank injects $1 billion into the economy, and banks have to hold 10% in reserve against their deposits, this will allow the first bank to lend 90% of this $1 billion. The $900 million in turn will end up with the second bank, which will lend 90% of the $900 million. The $810 million will end up with a third bank, which in turn will lend out 90% of $810 million, and so on.

It is so long since the long-term interest rate market was free of Fed intervention that the meaning of freedom has become deeply blurred. Many commentators suggest that the much talked about multi-year program designed by the Yellen-Fischer Fed to reduce that institution’s balance sheet is in fact synonymous with the road back to freedom for long-term rates. That is just not so.

Economists have long played semantic games with business cycles. In particular, they try to downplay the significance of the crisis and to obfuscate its cause.

First of all, bubbles and economic crises are initially denied and then usually not named until after they end and particular sectors of the economy are revealed to be what Lionel Robbins called “a cluster of entrepreneurial errors.”

In a recent article I advocated for a new way of naming business cycles. The new approach emphasizes the cause rather than the effect. So instead of the “housing bubble” and “financial crisis,” we should refer to the Greenspan-Bernanke Crisis. Here we will turn our attention to the current situation.

According to Ludwig von Mises,