The end of financial booms and busts?

Financial boom and bust cycles are increasing in frequency and the time between the booms and the busts are shrinking. First the dot-come bubble grew and burst and now the sub-prime saga. The way to restrain these bursts is to prevent the bubbles from occurring in the first place and stabilizing financial markets. This is done “by instituting policies that foster economic growth and prevent the type of boom and bust cycle that has just wiped out a decade’s worth of wealth accumulation,” says Gerald O’Driscoll Jr.,

And how do we institute these policies? Restrain the Federal reserve:

To avoid such a fate, Mr. Obama needs to stop the next asset bubble from being inflated by imposing a commodity standard on the Fed. A commodity standard (such as a gold standard) imposes discipline on a central bank because it forces it to acquire commodity reserves in order to increase the money supply. Today the government can inflate asset bubbles without paying a cost for it because the currency isn’t linked to the price of a commodity

The full WSJ article.