Coming Soon to an Economy Near You

Martin Hutchinson on what "we are at some point in the near future going to suffer" — The second Bernanke crash. He writes:

As I have frequently discussed, there were a number of causes of the 2008 crash, some of them rooted as far back in the past as financial theories devised in the 1950s and housing regulation designed in the 1960s. Nevertheless, if one single cause has to be assigned, it would be the excessive money creation in the United States after 1995 and worldwide after 2002. This caused a massive asset bubble, initially in stocks and later in housing. Once the bubble had inflated, a commensurate crash was inevitable.

Had monetary policy returned to sanity after September 2008 (and fiscal policy not itself relapsed into madness) that would have been the end of it. Banks would have been provided with unlimited funding, as Walter Bagehot recommended in his 1873 Lombard Street, but at high interest rates. The global economy would have undergone a sharp recession, steep because of the deflation of value that had become necessary, but by the middle of last year would have begun a healthy and sustained recovery.