Financial Terrorism
Have a good look at this important article -
http://market-ticker.denninger.net/archives/1895-Financial-Terrorism-You-Decide.html
Let’s recap –
2008, Hank Paulson: Put the money in the bag or the economy gets it.
2010, Robert Gibbs: Put the guy back in who continues to put the money in the bag, or the economy gets it.
Remember what happened in 2007 when we had reservations about putting the money in the bag? The Fed yanked $125 billion from the banking system in FOUR DAYS, September 19th to the 24th, 2008 to be precise.
Let this much be clear. Every senator who votes to reconfirm Bernanke and/or doesn’t do everything in his or her power to fire him must be fired – no exceptions.
I’m afraid of what might happen…so keep the guy who put the money in the bag.
1It’s a reasonable fear, but history provides us good instruction on what should be done and what works.
Take Andrew Jackson for example. He knew exactly where this type of thing led to, which in our case and his, was hyperinflation (or deflation if it broke enough sound banks in the process, our banking system being inherently deflationary).
So he kept firing treasury secretaries until he found someone who did the job. And Nicholas Biddle, chair of the Second Bank of the United States, threatened to plunge the nation into a depression if the bank’s charter wasn’t renewed.
It did eventually lead to a short panic, but in the end, we got our money back. And Biddle was thrown in jail.
I don’t doubt that today would be a lot messier, but at least all the fradulent debt, contracts and arrangements that caused the last bubble and will do so for the next will be done away with. The contraction would be sharp, but it wouldn’t be the type of decades long process Japan is going through.
Of course, you can look at the first depression Fed policies causes, namely the one between 1920-1921. We did the exact opposite of what we’re doing today, we actually shrank the government (the last time we actually did that), and the economy recovered.
Conversely, the other alternative is to let Bernanke and company try to revive the economy with speedballs. We all know this leads to a heart attack after a certain point, but the problem is you don’t find out what point that is until it’s too late. As they try harder, the parabolic backlash hurts more.
I have to agree with the author of the article that it’s time for Paul Volker to take charge. Let’s hope he wants the job. Bernanke’s just been dead wrong every time and we’ll pay too much if it continues. While I’m not for a central bank for many reasons (including the ones we’ve seen between 1913 and today), at least Volker did what he said, said what would happen, explained how it would happen and was right.
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