Friday, January 8, 2010


The mess we are now in probably had its beginnings in the financial debacle of 98. When LTCM collapsed and threatened to take down the financial system Greenspan responded by cutting rates and printing money. The result was a brief party as the tech bubble peaked. Of course as we all know that bubble was unsustainable and soon burst. The chickens of Greenspans meddling came home to roost.

In `00- `03 Greenspan had a second chance to do the right thing. If he would have just let the bear do its job and clean out the excesses that he himself created with low rates and too much liquidity we would have suffered through a nasty 2 or 3 year recession but we would now be on our way back up.

Instead he resorted to cutting and printing again. The result was one hell of a party as the credit and real estate bubbles formed. Unfortunately those kind of excesses have consequences and soon we were mired in the second worst bear market in history.

Now Bernanke is at it again only Ben is printing on steroids and has cut rates to 0.

All of this meddling in the markets hasn't stopped the bear. All it's done has given us our first lost decade.

If Bernanke really thinks he can print trillions of dollars and the US can rack up trillions of dollars of new debt every year and there will be no consequences they are sorely mistaken. The market has already given them two stern warnings that this strategy doesn't work. I wonder how many more times we have to go through this before they learn the lesson.