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Bernanke Created Half of 234 Years’ Worth of Money Supply

Posted By Barry Ritholtz On July 6, 2010 @ 9:14 am In Bailouts,Currency,Federal Reserve | Comments Disabled

“The U.S. turned 234 years old yesterday, and yet over half of the nation’s money supply was created since Helicopter Ben took over the flight controls four years ago.  No wonder gold is in a full fledged bull market . . .”

-David A. Rosenberg  Chief Economist & Strategist
Gluskin Sheff + Associates Inc.

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Fascinating data point by Rosie, which points to the absurdity of the past decade, most especially the Fed’s over-reaction to the economic collapse.

Most people still do not understand what was accomplished with the Bailouts. What helicopter Ben & Co. did — pouring trillions into the banking sector — served only to stave off a secular economic restructuring of the finance sector.

The can was kicked down the road, and their hope was the wild structurally imbalanced economy was allowed to persist.

By comparison, General Motors had gone down a path of bad management, poor products, lack of long term strategy. Their slide into bankruptcy was appropriate; it served to purge terrible management and awful business planning.

However, Banks were not allowed to suffer the fate that all insolvent businesses are supposed to. This was a terrible error, the greatest financial tragedy of the 21st century. That they were allowed to survive mostly intact is the result of the excess influence they have on a corruptible congress and a misguided Federal Reserve.

In light of the Austerian movement, [1] some folks are now arguing that the bailouts were a form of Keynesianism run amuck. Even my pal Roger Nussbaum [2] wrote that “Creating more debt won’t solve the problem of having too much debt. Stimulus creates artificial demand whereas effective policy creates real demand and… neither party understands this.”

There is truth to that, but it also over-simplifies the complexity of what was done to the economy in the guise of saving the system, but was really about bailout out bad banks, and foolish bondholders.

What occurred from March 2008 to present had nothing to do with economic stimulus or Keynes. Indeed, I suspect Keynes would have been aghast at what Bernanke — and Paulson and Bush and Geithner — had wrought . . .


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2010/07/half-of-234-years-worth/

URLs in this post:

[1] Austerian movement,: http://www.ritholtz.com/blog/2010/06/word-origins-austerians/

[2] Roger Nussbaum: http://randomroger.blogspot.com/

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