14 Oct 2009

Did Bernanke Really Fix the Banking Problem?

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The quixotic Von Pepe and I have been discussing the fact that Bernanke has quite literally papered over the huge problems in the banking sector. We both expect not merely another “dip” but a full-blown crash at some point. (I think it could happen any day, but I don’t want to put words in Von Pepe’s mouth.) I came across this chart and thought it illustrated our viewpoint quite nicely:

This is another great example of Fed charts as fine art. I think I could hand this picture out to 100 financial analysts and economists, ask for an interpretation, and get 100 different answers. Then, five years from now, we would look back and realize at least one of the respondents had nailed it. And I don’t think the winning entry would have begun, “Bernanke eased the credit crunch by providing desperately needed liquidity, thereby sparing the economy from a painful adjustment process in light of the bad loans made during the housing boom.”

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