Tuesday, October 14, 2008

Ben Bernanke's Confusion

Fed Chairman Ben Bernanke has an Op Ed in today's WSJ which indicates one of two things, he is either very confused about the crisis around him, or he is trying to confuse the rest of us.

Writes Bernanke:

Over the past year, the Federal Reserve has actively used all its powers and authority to try to help our economy through this difficult time.

Absolutely FALSE. As I have consistently stated, this crisis is about the Fed creating an economy dependent on more and more new money pumped into the system, and that the Fed stopped creating new money approximately four months ago. As I warned during the entire period here, here, here, here, here,here, here and here.

Central banks around the world have also consulted closely and cooperated in unprecedented ways to reduce strains in financial markets and to bolster our economies. We will continue to do so. However, clearly the time had come for a more comprehensive and broad-based solution...I also find it heartening that we are seeing not just a national response but a global response to the crisis, commensurate with its global nature

This is code for expanded coordinated global inflation. We are all Zimbabweans now.

History teaches us that government engagement in times of severe financial crisis often arrives very late usually at a point at which most financial institutions are insolvent or nearly so. In these conditions, the consequences and costs of inertia and inaction can be staggering.

What history really teaches and what Robert Higgs has clearly detailed in Crisis and Leviathan is used by the state to expand the state.

The Congress and the administration acted at a time when the great majority of financial institutions, though stressed by highly volatile and difficult market conditions, remain capable of fulfilling their critical function of providing new credit for our economy. Their prompt passage of the financial rescue legislation made possible the critical measures that will be announced this morning. These steps will allow us to restore more normal market functioning, and encourage private capital to further support the reinvigoration of financial markets.

Oh yeah, Ben, passing out $125 billion (Half the Congress approved first tranche) to the nine largest healthy banks was necessary.

As in all past crises, at the root of the problem is a loss of confidence by investors and the public in the strength of key financial institutions and markets.

No Ben, as in all past crises, the root cause has been central bank manipulation of the money supply.

1 comment:

  1. Mr. Bernanke is dodging the root cause, not identifying it. Causes of the crisis are that investors began realizing that property values were over-appraised, lots of mortgages were under-secured, lenders earning bonuses had encouraged borrowers to lie, and federal non-discrimination law had coerced lenders to lend to persons unable to repay loans.
    Investors began to look past outward appearances. They began to figure out that in the grand shell-game, no pea was hidden under any of the shells. But Mr. Bernanke blames an emotion called "lack of confidence," and refuses to publicly identify the root of the problem.