Fed Chairman Ben Bernanke told reporters Wednesday that the central bank had been caught off guard by recent signs of deterioration in the economy. And he said the troubles could continue into next year.
"We don't have a precise read on why this slower pace of growth is persisting," Bernanke said. He said the weak housing market and problems in the banking system might be "more persistent than we thought."
Well, I'm not surprised. It's completely obvious to me why the economy has not recovered: we have done absolutely nothing to fix it. The housing crisis was not an unexpected aberration, it was the completely predictable result of the systematic dismantling of the tax and regulatory regime that was in place in this country since the end of WWII, and replacing it with a tax and regulatory regime that more closely resembles what we had after WWI. In 1925 top marginal tax rates were lowered from 46% to 25% and banks were deregulated. Five years later the Great Depression started. By 1945 top marginal rates were back up to 90% and a strong banking regulatory regime was put in place that resulted in thirty years of unprecedented financial stability and prosperity. Starting in 1982 we began to dismantle that regulatory regime and lowered top marginal tax rates back down to 30% or so. The predictable result was increasing financial instability and economic inequality. Since 2008 we have done absolutely nothing to change the strategic situation so it shouldn't come as a surprise to anyone that we continue to see the same results.
I'm going to go on record here with the following prediction: within the next five years we will see an economic crisis that will make 2008 look like a cake walk by comparison. We came very close to a global meltdown back in '08, and the only thing that saved us from complete calamity was using up what little margin was left in the system to restore liquidity. The next time things start to come apart at the seams that margin will be gone. I have no idea when or how this crisis will come about. I just know that unless we make some painful choices it is a question of when, not if, this will happen. And right now I see no indication that those painful choices will be made. The fact that Ben Bernanke apparently has his head shoved so far up his butt that he can't see what is blatantly obvious to an amateur like me does nothing to bolster my optimism.
[UPDATE] Looks like my prediction may be coming true faster than I thought.