Bernanke: The Background: The Challenge He Faces

In November 2002, Mr. Bernanke, the current Federal Reserve Chairman, made a speech that is wonderful background in understanding his approach to the current crises he faces. He got his PHd from Yale, and his thesis was on the Great Depression. His one overriding theme of the thesis was to avoid deflation at all costs, and in the speech cited---click on the post----he goes over the actions that the Federal Reserve should take in the event of declining asset prices.

Take some time to click on the post and skim his speech. If you are following current events today, you know that Citigroup has replaced its Chairman, Mr. Prince III, and announced that in addition to the 6 billion writedown they did last month, they are doing another writedown of 8 billion tomorrow.

The question is what?

If the role of the Federal Reserve is to prevent rapid panic and deflation of assets such as the Great Depression of the 1930's, it would be nice to have enough money to do so. As I understand it, the SIV's that are being discussed have been held off balance sheet. It is thus unclear how much money is necessary to solve the problem that is being faced, and ....whether the Federal Reserve has the money to solve it. If in fact they do not, who would they seek help from. The Chinese? The Saudi's. There is a list and one wonders what the terms might be.

In summary. Bernanke believes in active intervention. There might not be the money at his disposal to solve the problem. Whether it be to bail out the banks or the consumer. ....and the consumer is not really on his list it seems to me.