The Next Financial Crisis; It's coming--and we just made it worse.

To many observers, the Federal Reserve has never looked more heroic than it does right now. This past winter, America’s financial system faced the prospect of utter ruin. And, while the economy has suffered plenty in 2009, the worst did not come to pass. The banking system that lends to our employers, thereby allowing our economy to function, never did collapse. Now, many of the accolades for averting catastrophe are going to the Fed. President Obama himself ratified this analysis last week when he renominated Fed chairman Ben Bernanke for a second term. Bernanke, the president told reporters, had marshaled “his background, his temperament, his courage, and his creativity” to help prevent a second Great Depression.

What these words of presidential praise obscured was that the Fed may well have mitigated our current crisis by sowing the seeds for the next one. All modern economies need a financial system that can connect people who want to save with those who have good investment projects. This is essentially what banks do. But, unfortunately, this process often goes wrong. And that is precisely what is happening now. Our banks have gotten into the habit of needing to be rescued through repeated bailouts. During this crisis, Bernanke--while saving the financial system in the short term--has done nothing to break this long-term pattern; worse, he exacerbated it. As a result, unless real reform happens soon, we face the prospect of another bubble-bust-bailout cycle that will be even more dangerous than the one we’ve just been through.

If you’ve studied U.S. economic history, none of this will come as a surprise. We have seen this spectacle--the Fed saving us from one crisis only to instigate another--many times before. And, over the past few decades, the problem has become significantly more dire. The fault, to be sure, doesn’t lie entirely with the Fed. Bernanke is a prisoner of a financial system with serious built-in flaws. The decisions he made during the recent crisis weren’t necessarily the wrong decisions; indeed, they were, in many respects, the decisions he had to make. But these decisions, however necessary in the moment, are almost guaranteed to hurt our economy in the long run--which, in turn, means that more necessary but harmful measures will be needed in the future. It is a debilitating, vicious cycle. And at the center of this cycle is the Fed.

The New Republic

Read the entire article to gain a better perspective.

There's not much I can comment on that most do not know already. I post these things to try and give everyone the chance to open their eyes. Have a read, learn a thing or two and see what is coming.

Liike saying basically the Economy (ie financials) have a debilitating drug habit and it OD'd (over leveraged) .. instead of detoxifying the economy, which in the short term would make it volatile, tempermental, we instead shot the economy with the drug again (trillions in reserve dollars) to carry on it's habit (over leveraging, predatory lending, credit expansion) which eventually means the economy will OD in the future, and may die all together. We appear to escape the brink of disaster.. but our judgement is clouded by the self induced euphoria we constantly inject our selves with.

reply to post by Rockpuck


Star for you. Best common sense analogy I have seen on the matter. Clearly we are all screwed.

reply to post by Rockpuck


Very well written analogy Rockpuck! A star for you and your imagination.

If you take your analogy and go into it further:
Our economy needs to go into rehab for its debt addiction as well.