Since wages represent 80% of the economy, their focus on inflation was an assault on wages.

The capitalists ended up being the only benficiary from productivity. Now the capitalist have learnt their lesson: the slaves can longer afford to gouge themselves on lower incomes.

Somewhat contrary to Palley, though, I would argue that this – and the soon to follow financialization – were driven by firms’ attempts to prevent the steep decline in average rate of profit experienced as the ‘golden age of capitalism’ (1950-1970) came to an end.

NB that such crisis (which, on a rate rather than mass of profit basis has not been overcome) also promoted a turn towards increasingly speculative activities or, as Patrick Bond put it in 2003:

…capitalists begin to shift their investable funds out of reinvestment in plant, equipment and labour power, and instead seek refuge in financial assets. To fulfil their new role as not only store of value but as investment outlet for overaccumulated capital, those financial assets must be increasingly capable of generating their own self-expansion, and also be protected (at least temporarily) against devaluation in the form of both financial crashes and inflation. Such emerging needs mean that financiers, who are after all competing against other profit-seeking capitalists for resources, induce a shift in the function of finance away from merely accommodating the circulation of capital through production, and increasingly towards both speculative and control functions. The speculative function attracts further flows of productive capital, and the control function expands to ensure the protection and the reproduction of financial markets. Where inflation may be a threat, the control functions of finance often result in high real interest rates and a reduction in the value of labour- power (and hence lower effective demand). Where bankruptcies threaten to spread as a result of overenthusiastic speculation, the control functions attempt to shift those costs elsewhere.

So, today we begin to notice that more than inflating asset prices and credit are required and that these increasingly undermine rather than offset but, heck, this has been known for at least 160 years.

OFHEO moves today to raise portfolio caps and Congressman Franks falling in line with Blinder are just the latest in a series of backward looking action. Triage is one thing, but the forward look is another.

Bernanke is essentially financing the banks. Look at the results of the Tafy auctions results. The number of bidders and the bid to cover is steadily increasing. The trend is not your friend in this instance.

All the bailout in the world will only exacerbate the slingshot blowback.