Everybody knows by now that 60 Minutes' Scott Pelley sat down with Ben Bernanke last Sunday night to talk things over. If you read DOTE, you also know that I've offered some harsh criticisms of QE2, and I've noted on more than one occasion the moral bankruptcy of Fed policy during the Bubble Era (1995-2007). The Fed manipulated interest rates, which helped blow the bubbles, which gave Americans the illusion of prosperity. They did this not once, but twice, once in the NASDAQ and again in the Housing Market. These policies, along with others like globalization, had the effect of covering up and making worse the gross deficiencies and unsustainability of a society dedicated to over-consumption and easy money.
I should add that it wasn't just the Federal Reserve that caused our general deterioration. It was the political system, the banking system, and the growth of a something-for-nothing mentality in the United States. Bubbles are good for Big Finance and if they blow up, the government or the Federal Reserve rides to the rescue. Our banking system (including the insurance industry) was unconstrained, far too powerful and utterly corrupt. The political system aided and abetted their rise at every step of the way. It is no accident that the creation of grotesque wealth and income inequality accompanied the rise of Big Finance—these are essentially the same thing. Money flowed to bankers, gamblers (e.g. the big hedge funds) and anyone else who could figure out how to game the system.
Now that the illusion of prosperity is gone, America's bankruptcy (both literal and figurative) is there for all to see. So if we criticize specific Fed policies now, we must remember that such policies are designed to jump-start a failed economy and, by extension, a failed society.
When the Fed lent out $3.3 trillion (3,300,000,000,000) to the big banks both here and abroad after the meltdown—Citigroup, Morgan Stanley, Merril Lynch, Bank of America and Goldman Sachs were the biggest recipients—its prompt actions are said to have saved the American and world economies. This the Fed did, but in doing so they saved an unconstrained, overly-powerful, utterly corrupt global financial system which remains unreformed and should never have been allowed to exist in the first place. Everybody can see that those banks are back in the saddle again, doing exactly doing what they did before the crisis, making the big bonuses, sucking money out of any suckable place they can find.
Now we're back to having "two societies" as Ben Bernanke put it to Scott Pelley. Or actually, we never really left having two societies, it's just much more obvious now in the post-meltdown world.
Pelley — The gap between rich and poor in this country has never been greater. In fact, we have the biggest income disparity gap of any industrialized country in the world. And I wonder where you think that’s taking America.
Bernanke — Well, it’s a very bad development. It’s creating two societies. And it’s based very much, I think, on– on educational differences The unemployment rate we’ve been talking about. If you’re a college graduate, unemployment is five percent. If you’re a high school graduate, it’s ten percent or more. It’s a very big difference. It leads to an unequal society and a society– which doesn’t have the cohesion that– that we’d like to see.
[My note: Our failed education system will have to be the subject of a separate essay. Needless to say, our college graduates flocked to law and finance, not science, medicine and engineering, during the Bubble Era. Bernanke's remarks here are misleading and disingenuous. And a college education is unaffordable for most Americans unless you're willing to become a debt slave.]
Bernanke claims that we might have had 25% unemployment if the Fed hadn't bailed out the morally and quite literally bankrupt global financial system, and maybe he's right. The problem is that those of us living in the "lesser" of those two societies should never have been put in such a position of weakness and abject dependency in first place. In every sense, nothing has changed regarding that dependency, except now underemployment is around 17-18%, which we might as well start thinking of now as a permanent condition of our economy.
These all-too-brief remarks create the proper context for understanding Bernanke's defense of the Central Bank's actions in the 60 Minutes interview. It is particularly ironic for Bernanke to warn us about the "two societies" that Fed policy and lack of oversight did so much to create. And I am still waiting for Ben Bernanke to say the word "bubble" when he talks about what happened to the Housing Market.
Here is a transcript of the Bernanke interview, and here is the interview itself.
haha, you'll love this!
http://news.yahoo.com/s/yblog_thelookout/20101206/us_yblog_thelookout/government-cant-print-money-properly
Posted by: Gail | 12/07/2010 at 12:06 PM