E Fed Great Depression And Great Recession Liquidations Go Unexplained

Scott Sumner agrees with you. It’s a national tragedy that the there is no official way to evaluate the Fed’s performance. The key sentence: “The Fed does not currently evaluate whether its past decisions were wise, even in retrospect.” Forget about holding the Fed to some goal imposed from the outside. The Fed isn’t even willing to state its own goals, by which it would be willing to be held accountable.

Clearly, Democracy is incompatible with this refusal by the Fed to reveal why it acted the way it did in the great liquidation of 2008. Citizens have the right to understand this subject!

It is interesting to note that Mellon was rehabilitated, known as a man who pushed for lower interest rates, and better monetary policy, to help deliver the nation from the Great Depression. Truth is, Bernanke's image was rehabilitated the same way, as he used monetary policy not seen since the Great Depression to prevent the Great Recession from becoming the Great Depression. Bernanke was looked upon as a hero.

Only problem is, both of these men gave a glimpse into the inner workings of the Federal Reserve Bank, and it isn't a pretty picture. They liquidated before restoring. They didn't have to liquidate, at all. They could have limited the damage of the credit crises they faced by simply coming to the aid of the markets much sooner.

Bernanke was constrained from acting on steps he felt would be superior to the Japanese lost decade, but instead he allowed another liquidation. That is troubling. It appears that, unless it explains itself, the Fed was not acting in the national interest in the 1930's nor in the 2000's. Geddis said the Fed won't  explain itself.

I believe that the Fed was engaged in a conspiracy at Basel 2, adopting mispriced risk and off balance sheet banking to allow that risk to be hidden. Then Bernanke presided over a liquidation that "corrected" the exuberance of the markets and caused a massive transfer of wealth from the middle classes to the wealthy. Now, I don't speak for the Market Monetarists, but clearly they expose this as a possible scenario, though they would try to explain in through more benign means.

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Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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