Federal Reserve Chairman Ben Bernanke bluntly warned Congress on Tuesday it risks a recession, with higher unemployment and increased home foreclosures, if lawmakers fail to pass the Bush administration's $700 billion plan to bail out the financial industry. ABC News
"Nonsense," says the Dude, in response to Bernanke's views.
The causes of the current economic malaise, which will deepen in the coming quarters, regardless of the policy response, are large external debts combined with large and growing deficits.
The bail-out merely shifts the form of the resolution process from a sequence of private sector bankruptcies to a more generalized inflation as private (or semi-private in the case of Fannie Mae and Freddie Mac) sector corporate imbalances become nationalized.