For readers who are unfamiliar with Market Monetarism I have a number of pieces of research that I would recommend, but everybody should start out by reading Robert Hetzel’s excellent and truly thought provoking paper “Monetary Policy in the 2008–2009 Recession”
Here is the abstract:
“The recession that began with a cyclical peak in December 2007 originated in a combination of real shocks because of a fall in housing wealth and a fall in real income from an increase in energy prices. The most common explanation for the intensification of the recession that began in the late summer of 2008 is the propagation of these shocks through dysfunction in credit markets. The alternative explanation offered in this article emphasizes propagation through contractionary monetary policy. The first explanation stresses the importance of credit-market interventions (credit policy). The second emphasizes the importance of money creation (money-creation policy). According to Federal Open Market Committee (FOMC) Chairman William McChesney Martin, “The System should always be engaged in a ruthless examination of its past record” (FOMC Minutes, 11/26/68, 1,456).”
Hence, Hetzel’s view is that the 2008-9 recession primarily was a result of excessively tight US monetary policy. Scott Sumner puts forward the same story and here I would especially recommend reading “The Real Problem Was Nominal”.
Robert Hetzel has a book in the pipeline on the Great Recession. I am sure it will change the way we all look at events since 2008.