Professor Bernanke’s Bogus Contra-Factual, Part 1: The Myth Of Great Depression 2.0

It took no “courage” whatsoever to inflate the Fed’s balance sheet from $900 billion to $2.3 trillion during just 17 weeks in September-December 2008. What it actually took was an epochal con job by a naïve Keynesian academic whose single idea about economics was primitive, self-serving, borrowed and wrong.

The claim that the Great Depression was caused by the Fed’s failure to go on a bond buying spree in 1930-1933 was Milton Friedman’s monumental error. Professor Bernanke’s scholarship amounted to little more than xeroxing Friedman’s flawed work, and then shouting loudly in the Eccles Building boardroom at the time of the Lehman bankruptcy that Great Depression 2.0 was lurking just around the corner.

That was just plain hysterical malarkey. But at the time, it served the interests of the Wall Street/Washington Corridor perfectly.

As Wall Street’s decade long spree of leveraged speculation was being liquidated in September 2008, Goldman Sachs, Morgan Stanley and their posse of hedge fund speculators desperately needed rescue from their own reckless gambles——especially their funding of giant balance sheets swollen by long-dated, illiquid, risky assets with cheap hot funds in the wholesale money market. So what better excuse to override every principle of free market economics, financial discipline and public policy fairness than stopping a reenactment of the 1930s—–putative soup-lines and all?

At the same time, beltway politicians and fiscal authorities were tickled pink. They would be able to unleash a monumental $800 billion potpourri of K-street pork and tax and entitlement giveaways to “fight” the recession, knowing that Bernanke & Co would finance it with an eruption of public debt monetization that was theretofore unimaginable.

In short, no public official has ever committed an economic folly greater than the horrific misdeed of Ben S. Bernanke when he provided the Great Depression 2.0 cover story for the lunatic outbreak of central bank money printing shown below. It destroyed the last vestige of Wall Street discipline in a financialized economy that had already been bloated and deformed by two decades of Greenspan era Bubble Finance.

Click on image to enlarge

Now the speculative furies would be unleashed like never before. In one great fell swoop the above monetary explosion destroyed price discovery and financial responsibility entirely, turning Wall Street into a pure casino and enabling windfalls of massive proportion and unspeakable inequity to be showered on a tiny slice of the population.

So just call Bernanke’s 583 page tome “The Courage To Print” and be done with it. He does not even bother to prove that a great depression was imminent. Nor does he show that what would have actually been a short-lived and healthy liquidation of financial speculation on Wall Street would have spilled over to the real economy and taken main street into the drink.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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