Gloom & Doom from Mike Whitney Part 6,721,452

Mike Whitney from Counterpunch argues that the Fed's massive injection of liquidity into the financial system is having little effect. He quotes Christopher Woods from the Wall Street Journal:

"The origins of the modern conventional wisdom lies in the simplistic monetarist interpretation of the Great Depression popularized by Milton Friedman and taught to generations of economics students ever since. This argued that the Great Depression could have been avoided if the Federal Reserve had been more proactive about printing money. Yet the Japanese experience of the 1990s -- persistent deflationary malaise unresponsive to near zero-percent interest rates -- shows that it is not so easy to inflate one's way out of a debt bust."

Whitney goes on to say:

The Fed has increased the money supply at an unprecedented pace and expanded its balance sheet to $2.25 trillion, but velocity is down. [snip] According to the Wall Street Journal, " the issuance of nonagency mortgage-backed securities (MBS) in America has plunged by 98 per cent year-on-year to a monthly average of $0.82 billion in the past four months, down from a peak of $136 billion in June 2006. There has been no new issuance in commercial MBS since July. This collapse in securitization is intensely deflationary."

Whitney thinks there is not going to be any real structural change out of Obama's economic team, which is the only thing that can restore confidence in the financial system. He writes:

And how can confidence be strengthened when no one pays for predatory lending, ratings manipulation, malfeasance, fraud, or any other white collar crime? So far, not one indictment has been served in the biggest financial swindle of all time. That's not how a "rules-based" system is supposed to operate.

[snip]

Treasury Secretary Timothy Geithner and presidential adviser Lawrence Summers believe they can fire off a stimulus salvo and put the economy back on track, but it will take more than that. The financial system needs fundamental structural reform and both men rose to power because they proved themselves defenders of the status quo. Geithner and Summers may nibble at the edges and make grandiloquent proclamations about rebuilding the system, but when it’s time to pull the trigger, they will subvert every attempt to regulate or oversee the system which they feel is the sole province of the establishment elites who own the big financial institutions. There's bound to be plenty of blasting trumpets and celebratory confetti to greet Obama's economic whiz kids. Just don't expect change. Barring a complete economic meltdown, the rot at the heart of the system will continue to fester and grow under Obama just as it did under Bush and Clinton.

Since I'm an Obamacynic, I agree 100%. So what's in store? A long, deep recession. Read the whole piece!