[dirtboy]

They spotted it. Now how does one keep it from inflating?

Have the fed contract the money supply, raise interest rates and adjust reserve requirements.

[djsherin]

Which causes all the malinvestment made during the boom/bubble period to be liquidated.

The free market wouldn’t allow that to happen. An unprofitable business would not get the funding it needs to stay alive. It would go bankrupt and the extreme bubble would never form.

***Have the fed contract the money supply***

So what I see here according to your logic is a period of growth when the money supply is expanding and a period of contraction when the money supply is falling. I don’t see how that is any more desirable than simply letting the free market direct savings and investment.

What you’re describing is central planning pure and simple. If the fed can manage the money and credit supply better and set interest rates more efficiently than the free market, why is it so incapable of setting the prices and production quotas of everything else?