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Home Publications Blogs Beat the Press Ben Bernanke, Who Claims to Have Brought the Economy to the Brink of a Second Great Depression, Gives States Advice on Dealing With Budget Shortfalls

Ben Bernanke, Who Claims to Have Brought the Economy to the Brink of a Second Great Depression, Gives States Advice on Dealing With Budget Shortfalls

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Thursday, 03 March 2011 05:44

Suppose former FEMA director Michael Brown gave a lecture on how to best rebuild New Orleans following Katrina. Presumably the media covering the speech would point out that Brown's ineptitude in responding to the storm was one reason that the city's population was so devastated by it.

For this reason, it is surprising that Post never noted the same irony in reporting on Federal Reserve Board Chairman Ben Bernanke's advice to states dealing with budget shortfalls. The reason that nearly all the states are facing severe budget problems is that the economy is in the middle of the worst downturn since the Great Depression.

This downturn is the direct result of the Fed's failure to take steps to curb the growth of the housing bubble before it reached the point where its collapse would devastate the economy. Bernanke was at the center of this failure, having been one of 7 Fed governors from 2002 to 2005 and then coming back as Fed chairman in January of 2006.

Bernanke has never downplayed the extent of this disaster himself, telling Congress in the fall of 2008 that the economy was on the brink of a complete collapse. While the claim that the economy was at risk of a second Great Depression is not true (we know how a reflate an economy, so there never was any risk of a decade of double-digit unemployment), Bernanke has helped to promote it.

 


Comments (5)Add Comment
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written by izzatzo, March 03, 2011 7:41
Boy Monarch Bush here. Heckova job Bernie. Wanna buy my book on decisionalusional point making? It's useful for understanding economics and cowboys and fishing and other stuff like wanted dead-or-alive posters that are essential to freedom, which is not free you know. As a money man who knows how to 'man up' when the going gets tough, you da man Bernie. Without you, it would have been a lot worse.
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written by Jeff Z, March 03, 2011 11:53
The voters in Oregon recently passed a ballot measure that increased taxes on the wealthy, by a fairly comfortable margin after a vigorous debate. For details, http://www.yesmagazine.org/peo...ve-agenda.

It is sad that this sort of thing is not even on the radar screen for most pols and the Washington Post, but in every other budget crunch there was at least a realization that some taxes might have to go up. This kind of progressive reform is actually beneficial, as it preservers essential state services.
a couple of points
written by Chocolate Covered Cotton, March 03, 2011 2:18
Well, first of all, Mike Brown did go on after stepping down from FEMA to run a crisis management consultancy. And yes, it was laughable. I believe it was nothing more than the means by which Bush, Incorporated funnelled some cash his way as payment for taking the heat and stepping down without blowing the whistle on the admin's disastrous leadership (beginning with the decision to place FEMA under DHS). He fell on his sword, took all the blame, and got paid.

I don't get your last paragraph. Hasn't the U6 figure been well into double digits for a decade already? I don't see how you can say that the economy was not at risk of a Second Great Depression in 2008 or that it's not still at risk or that our modern understanding of economics is the reason why it's not at risk.

The problem isn't that nobody knows how to stop it: the problem is political. Well before Roosevelt, there were economists calling out the stock market bubble and the coming catastrophe. As the collapse came and the situation worsened, Hoover's failure to act decisively (though he was moving in the right direction) due to the conflicting advice he was getting, made it much worse than it might have been. That is, *how* to fix the economy was understood by economists who weren't bound to the laissez-faire ideology, but their warnings went unheeded and recommendations ignored by political leaders.

We know how to fix this economy today: we can raise employment through deficit spending; we can raise taxes on wealthy corporations and individuals; we can inflate the currency a few points to ease the burden of public and private debt but at the expense of the wealthy to whom the debt is owed; we can re-regulate the financial sector and enforce existing real estate recording and foreclosure laws; we can make health insurance a public utility; we can stop funding global warfare. But it's increasingly apparent that we won't do any of these things *for political reasons*.

The problem, then and now, is policymakers' failure to take steps that would cost their financial backers. Or for that matter, it is and was their failure to acknowledge the reality of the situation and with that, the failure of their ideology and their own culpability.

Bernanke's recognition of the severity of the problem in 2008 was self-servingly combined with his refusal to recognize his own culpability. He helped cause the problem then used the severity of it to push for that ridiculous Wall Street bailout. He's a hack, a tool of the bankers, just like Greenspan before him. It was Shock Doctrine economic politics.
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written by Calgacus, March 03, 2011 7:07
Reiterating CCC's points:

While the claim that the economy was at risk of a second Great Depression is not true
It was and is true. While more is known nowadays, and I think CCC overstates the pre-Depression understanding a bit, there is also more sheer lying and lunacy in the economics profession, and desire among economists, politicians and their predator-class puppetmasters to have a second Great Depression, to better put collars around ordinary peoples' necks.

there never was any risk of a decade of double-digit unemploymentThere was no decade of double digit unemployment in the Great Depression. The standard (Lebergott) numbers are useless, because they count WPA, PWA etc government workers as unemployed. The correct numbers are the lower, Darby numbers.
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written by Fed Up, March 04, 2011 6:17
"While the claim that the economy was at risk of a second Great Depression is not true (we know how a reflate an economy, so there never was any risk of a decade of double-digit unemployment), Bernanke has helped to promote it."

So you can explain to everyone the difference between creating more medium of exchange with currency and creating more medium of exchange from the demand deposits created from debt?

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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