Monday, December 1, 2008, 3:45 PM
Bernanke's remarks today did little to soothe this ruffled observer. His remarks struck me as practically dishonest in their inability to speak directly to our actual problems.
Bernanke says Fed still has arrows in quiver
WASHINGTON (MarketWatch) - The Federal Reserve has lowered interest rates just about as far as they can go, but the U.S. central bank still has plenty of available firepower it could deploy to restore financial markets to normal, Fed Chairman Ben Bernanke said Monday.
I wish that we could just get some straight talk about our actual condition, instead of this weird insistence on "restoring our financial markets to normal." This ignores the fact that they were completely abnormal. Why would we want to return there? I guess it's this strange insistence on continually repeating the mantra that things can be "restored to normal" that's got me unsettled.
The way I see it, there's no "normal" to return to. Things were hopelessly out of whack before, and now they will settle into some new, different level of activity.
George Soros refers to this same process in his Theory of Reflexivity, arguing that the mainstream economic insistence that there is some sort of magic equilibrium is utterly without merit. Instead, markets reflect the interplay between human perceptions and reality. So there's no such thing as "equilibrium." Everything is constantly in flux.