Bernanke is a scholar of the Great Depression. He is familiar with Hyman Minsky and Minsky's "Financial Instability Hypothesis", which states that, "A fundamental characteristic of our economy is that the financial system swings between robustness and fragility and these swings are an integral part of the process that generates business cycles." Stability leads to instability. By zeroing in on capitalism's genetic flaws, Minsky countered the prevailing orthodoxy that markets are fundamentally efficient and rational.
When the size of the financial system grossly exceeds the productive capacity of the underlying economy, problems arise. Surplus capital flows into paper assets triggering a boom. Then speculators pile in, driving asset prices higher. Margins grow, debts balloon, and bubbles emerge. The frenzy finally ends when the debts can no longer be serviced and the bubble begins to crumple, sometimes violently. As gas escapes, credit tightens, businesses are forced to cut back, asset prices plunge and unemployment soars. Deflation spreads to every sector. Eventually, the government steps in to rescue the financial system while the broader economy slumps into a coma.
The Fed handed Wall Street a golden parachute while ordinary working stiffs were kicked to the curb. Financial sector debt is the same as it was a year ago, and the reduction in leverage is due to equity base expansion, partly due to government funding.
The Fed's lending facilities should be viewed with skepticism. They weren't set up merely to rescue the system from disaster, but to keep asset prices artificially high so institutions could continue to maximize profits via risky investments. It's worked, via a stock bubble. The Fed's emergency intervention pulled the system back from the brink, but at great cost. The financial system must be downsized.
Jobs ARE recovery; therefore a jobless recovery merely points to asset-inflation brought on by erratic monetary policy. Surging stocks shouldn't be confused with a real recovery.
Excerpted from Mike Whitney @ Counterpunch
Bernanke know these things yet is hell bent on providing free money to fraudsters and preserving securitization. He is an agent for the rich, consistent with their 80% control of the Federal Reserve. As long as he is in charge there will be no recovery.
