The Financial Crisis, thus far, has been about two MASSIVE forces butting heads. Those forces are Deflation (housing, stocks, earnings, wages, production, etc) and Government Intervention, or Re-flation (commodities, stocks, gold, etc).
For most, if not all, of the 20th century (1932 onwards), the US operated under an “inflation” mentality from the perspective of the financial markets, the US Dollar and especially credit expansion. This is clear in the Dollar losing roughly 96% of its value post 1932 as well as the explosive boom in credit expansion from the 50’s onward.
This all came to a screeching halt in 2007 when we hit a point of debt saturation - a point at which debt was so out of control that the idea of counter-party risk (that the person you lent to may not pay you back) seized the markets (first credit, then bonds, then stocks).
Thus began a slow motion implosion which accelerated into the deflationary nightmare in which asset prices of all kinds (houses, securities, and eventually commodities and stocks) fell. This was the market saying “ENOUGH!” as far as debt expansion is concerned. And it marks the culmination of the “Market Forces” element.
The Federal Reserve - which lives, breathes and eats the Inflation mentality - went head to head with Market Forces by trying to RE-flate the US economy AND financial markets. This marks the introduction of the second force: “Government Intervention.” The Intervention came in the form of extremely low interest rates, the suspension of accounting standards, money printing, bailouts, and stimulus spending.I want to make one key point here: the Fed DID NOT have a plan for ANY of this. Ben Bernanke didn’t even SEE the Financial Crisis coming. So the idea that he somehow had a “plan” or general idea of how to deal with it
