Working people are not being crushed by accident, but according to plan. It is the way the system is supposed to work. Bernanke knows that sustained demand requires higher wages and a vital middle class. But what does he care. He’s not a public servant. He works for the banks. That’s why the Fed’s monetary policies reflect the goals of the investor class. Bubblenomics is not the way to a strong/sustainable economy, but it is an effective tool for shifting wealth from one class to another. The Fed’s job is to facilitate that objective, which is why the economy is headed for the rocks. Mike Whitney.
Credit is not flowing. In fact, credit is contracting. That means things aren’t getting better; they’re getting worse. When credit contracts in a consumer-driven economy, bad things happen. Business investment drops, unemployment soars, earnings plunge, and GDP shrinks. The Fed has spent more than a trillion dollars trying to get consumers to start borrowing again, but without success. The country’s credit engines are grinding to a halt.
Bernanke has increased excess reserves in the banking system by $800 billion, but lending is still slow. The banks are hoarding capital in order to deal with the losses from toxic assets, non performing loans, and a $3.5 trillion commercial real estate bubble that’s following housing into the toilet. That’s why the rate of bank failures is accelerating. 2010 will be even worse; the list is growing. It’s a bloodbath.
The standards for conventional loans have gotten tougher while the pool of qualified credit-worthy borrowers has shrunk. That means less credit flowing into the system. The shadow banking system has been hobbled by the freeze in securitization and only provides a trifling portion of the credit needed to grow the economy. Bernanke’s initiatives haven’t made a bit of difference. Credit continues to shrivel.