Bear Sterns, bear markets and the coming credibility crunch
The US Federal Reserve Bank has been pumping rocket fuel into the economy for years by the simple expedient of inflating the money supply and debasing the currency. For year after year after year the Fed's printing presses have been pumping credit into the world's markets, yet as their credit-created chickens are now coming home to roosts all around us the only thing that's never questioned is the existence of the Federal Reserve system and its meddling central bankers.
The Fed's fingerprints are all over the 'credit crunch' and the sub-prime crisis yet not once have they questioned their policy or their existence -- instead they continue headlong with a policy of full steam ahead, and damn the torpedoes.
Sub-prime crisis? More credit is the answer.
Stock market start to creak? Throw more counterfeit capital at the problem.
Banks and finance houses going belly up? Inject even more credit to throw new money after bad.
Invoke a rarely used Depression-era procedure to bolster Bear Stearns, the latest casualty, and promise to pump in even more counterfeit capital to fund further malinvestment, and instead of being booed the Fed receives the mass plaudits of the commentariat -- most of whom are as eager to see new credit as crack addicts are to see the chance of a new fix.
President Bush says of this latest fix that Fed Chairman Ben Bernanke is "doing a good job under tough circumstances. Intelligent observers say just the opposite. Ludwig von Mises for example, who told readers back in 1949 that :
There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as the final and total catastrophe of the currency involved.
Or observers such as 'Adventure Capitalist' and famously contrarian investor Jim Rogers who told CNBC last week it's time for the economy to go cold turkey, and for the Fed and Ben Bernanke to fold their tent and shuffle off the stage before it's too late. Rogers' interview is worth watching in full -- he's one man who does know what's going on: