We have no more confidence that the Fed chairman will get us out of this mess than we did in his predecessor's ability to stop it from happening. Ben Bernanke is supposedly a student of the Great Depression, and so we might have expected him to change tactics long ago -- from battling inflation to warding off the far more serious threat of a ruinous debt deflation. Instead, for the last two years, the Fed continued to act, by not acting, as though a niggling rise in the price of eggs, gasoline, and shoe laces were somehow more threatening than the by-now unstoppable deterioration of the real estate market. Unfortunately, now that the Fed has made it implicit that it will do whatever it takes to keep the financial system liquid, it appears doubtful that any rescue attempt can succeed. The central bank will be pushing on a string, as the saying goes, unable to trigger yet one more borrowing binge by consumers who have become hopelessly trapped in the worst real estate slump since the Great Depression. Moreover, we doubt the Fed even knows what it is doing as it plays whack-a-mole with each new financial crisis that springs up. Preparing for a Typhoon A dissenting view is that the Fed not only knows what it is doing, but that it is taking uncharacteristic pains to prepare America for an economic typhoon. That is the substance of a letter we received recently from Erich Simon, our friend and erstwhile bird flu expert. Here is Erich's take on the post-Greenspan Fed in crisis: 'Bernanke isn't buoying the markets like his predecessor did with under-the-table deals. He is making provision for write-offs, marks-to-market -- for all the wantonly speculative behavior of an overcrowded planet with little gainful employment. It used to
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