Deep thoughts here from SocGen’s Albert Edwards:

It’s almost as if the biggest credit bubble in history never occurred. Investors are increasingly
convinced that a sustainable global recovery is emerging out of the wreckage. All praise to the
central bankers (and Gordon Brown) for saving the world! I’m waiting till someone writes
about the return of The Great Moderation and suggests Ben Bernanke is the new Maestro.
Then I’ll know the lunatics have taken over the madhouse…..yet again!

When you look at the ever shrinking rate of bank lending to the private sector around the
world it is clear as the nose on my face that the global economy is still very, very sick. As we
have repeatedly highlighted, one key lesson from Japanese boom and bust is that banks are
not the problem. Bankers bonuses are not even the problem. The pigmies that populate the
political and monetary elites prefer to genuflect to the court of public opinion in a pathetic
attempt to deflect blame from their own gross and unforgivable incompetence. It is the
monetary and regulatory authorities that are responsible for this mess. It is not obvious in
retrospect. It was obvious from the very start.

The problem is that after the boom there will be a bust. The issue now is one of deleveraging
and the deflation that is starting to unfold. The problem is that Bernanke is a
slave to Milton Friedman’s view of the Great Depression (at Friedman’s 90th birthday
Bernanke promised that the Fed would never allow another Great Depression to occur). The
Australian economist Steve Keen’s observation that “Bernanke’s dilemma is that he is living
in a Minskian world while perceiving it though Friedmanite eyes explains his actions to
date. It also explains why he will fail.

Source: FT & SocGen