Ben Bernanke: Anatomy of a Meltdown

There is a long and fascinating article in the latest New Yorker (yes I do read magazines of the liberal persuasion). The article is about Ben Bernanke titled Anatomy of a Meltdown. I had to laugh when in the second paragraph the author John Cassidy referred to Bernanke’s predecessor as “the charismatic free-market conservative Alan Greenspan.” Greenspan is widely known as a follower, at one time of Ayn Rand, and a strong proponent of Gold, but he turned out to be anything but conservative. In fact, he betrayed his mentor.

The article highlights the radical change that Bernanke took,

Ben Bernanke, who seemed to have been selected as much for his predictability as for his economic expertise, is now engaged in the boldest use of the Fed’s authority since its inception, in 1913.

It also points out how Bernanke didn’t see most of the crisis coming down the road. He preached about the “global saving glut”; he thought there was no problem with housing prices saying,

“I think it is important to point out that house prices are being supported in very large part by very strong fundamentals. . . . We have lots of jobs, employment, high incomes, very low mortgage rates, growing population, and shortages of land and housing in many areas. And those supply-and-demand factors are a big reason why house prices have risen as much as they have.”

And indeed a national housing decline hadn’t happened since the thirties. I think they also underestimated the leverage in the system arguing that sub-prime were only $2 Trillion out of a total of $14 Trillion.

I think the article gives us an important clue as to what’s coming soon:

Tim Geithner, the soon to be Treasury Secretary says. “We’ve done some incredibly controversial, consequential things in a remarkably short period of time, and it’s because he (Bernanke) was willing to act quickly, with force and creativity.” Bernanke, as well as Obama, are looking to FDR for clues to get us out of this depression.

After assuming office, in March, 1933, Roosevelt enacted bold measures aimed at reviving the moribund economy: a banking holiday, deposit insurance, expanded public works, a devaluation of the dollar, price controls, the imposition of production directives on many industries. Some of the measures worked; some may have delayed a rebound. But they gave the American people hope, because they were decisive actions. (emphasis added)

That’s what I believe is coming. Today over at Jesse’s Cafe Americain, is a reflection on economist Paul Krugman and what worked in the thirties and Jesse writes. After analysing the money supply numbers he concludes with

It is obvious that devaluing the dollar was the right thing to do.

We are looking a high inflation based on all the money that has been put into the system or authorized. It now is up to $8.5 Trillion, even before Obama. For years Richard Russell has told us that in crunch times the FED will have to “INFLATE OR DIE!” We are there.

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