Actually, i don’t think that quite gets the arrow of causality right. The U.S. has been suffering from a lack of investment/wage growth, due to MNC sponsored “free trade” policies, as expressed in the gigantic CA deficit. Consumption flows into the vacuum in the GDP figures, especially since incredible amounts of credit-liquidity, due to unregulated global finance, excessive monetary accomodation, and foreign mercantile currency manipulation, result in financial asset inflation, which finances excess consumption starting with the top third of the income distribution, and increasing upward. The bottom two thirds has been accumulating debt, at best and at most, to barely keep their heads above water. The oncoming debacle has not simply been due to excessively greedy and heedless consumption, which most of the population hasn’t participated in anyway, but is due to a set of deliberately steered policies.

Mellon’s suggestions to Hoover about allowing liquidation to purge the rottenness from the system are invariably quoted on the net as if Hoover took that advice, and that it was therefore a prime cause of The Great Depression.

But in fact Hoover ignored that advice, and immediately began to launch stimulus measures in an attempt to do the opposite.

Many years ago Murray Rothbard wrote a very interesting book in which he argued somewhat persuasively that the depression would have ended sooner had Hoover taken Mellon’s advice.

Originate credit faster than it is being vaparized or you have Depression.

P.S….The Dollar has put in it’s low. Everyone suddenly needs Dollars.

A risk based analysis would be more useful. Bernanke at all times leaves himself open to adjustment according to different risk outcomes. More than once he has said he is prepared to move, based on adverse outcomes.

Credit spreads and the banking system, enormously important in this particular cycle, are given little consideration.

Duy says nothing about the potential path of exports, imports, and current account adjustment. Nor does he consider possible longer term adjustment to dollar pegs (as in the post that follows.) The Fed is calling the bluff on foreign central banks by lowering rates.

The hammer/nail analogy is not the best. The Fed’s legitimate job is the fed funds rate.

I thought the woes are a result of non-regulation, non-accountability and non-enforcement and other non-sense!