Bernanke's Complete and Utter Failure

It has been about six months since Federal Reserve Chairman Ben Bernanke panicked and issued a surprise rate cut. Ostensibly, it was positioned as an attempt to ward off recession by injecting liquidity into the market. If that had been the extent of his command-and-control meddling, we might've been out of the woods by now. Sadly, it wasn't, and we're not.

Instead, we've been treated to some of the most incompetent monetary policy ever to come out of that hundred-square-mile hunk of swampland known as Washington, D.C. It'd be amusing to watch from afar, if it weren't so painful to live through.

Comrade Bernanke's central planning blunders
At the core of the current catastrophe is Bernanke's asinine assumption that simply throwing money at a problem is a way to solve it. Unfortunately, the (nearly) free money he throws about is about the costliest capital on the planet. The true cost isn't measured by the interest rate he arbitrarily chooses to charge, but on the effects his actions have on the private sector.

First and foremost, Bernanke's bailouts socialize risk while privatizing profit. It started with that sweetheart deal that JPMorgan Chase (NYSE:JPM) got by picking up Bear Stearns' assets while shafting taxpayers with $29 billion of its liabilities. It continued with the insanity by opening its "Primary Dealer Credit Facility." Essentially, with that window, we taxpayers have been forced into making margin loans to brokers like Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), and Lehman Brothers (NYSE:LEH).

Now, just a few months after they begged to be allowed to take on the extra risk of higher loan limits, Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) are also failing. Go figure. So Bailout Ben once again opens your wallet and hands out your hard-earned cash through that special window available to the politically connected few. This time, though, the money is going to the mortgage giants whose "conservative" lending standards were supposed to have made them immune to the subprime mortgage meltdown.

Hmmm. Could it possibly be that all that cheap federal cash Bernanke keeps handing out is crowding out private investment, thus exacerbating the credit crunch? Who in their right mind, after all, is going to stick their neck out to loan money for anything, when the government is only charging 2.25% to essentially failing companies? Not a single person with a brain and two wooden nickels to rub together, that's who.

That's the second problem with Bernanke's interventions. Rather than helping restore liquidity to the market, the Fed's too-cheap interventions are actively keeping private money out. No wonder Bernanke "had" to extend both the duration and the list of companies eligible for his emergency window of essentially free cash. Of course, any Fool should have seen that coming when the window first opened.

The consequences of socialized lending
Without private liquidity, the ability to borrow for business expansion is at a standstill for any company not a member of Bernanke's politically privileged elite club. That translates to job losses, a weaker economy, and a far longer period of time until we hit rock bottom and can start to rebuild.

And unfortunately, by handing out cash at rates well below rational levels, that economic stagnation comes with the additional pain of inflation. Or, to revive the 1970s term: stagflation. Since Bernanke's first destructive salvo on that cold January day, here are some shocking stats about the further deterioration of the economy:

In a nutshell, the cost of living has become phenomenally more expensive in the past six months, thanks to far-too-cheap lending. To make matters worse, our capacity to pay for it has evaporated, too, thanks to the falling greenback and stock prices. If that's what "help" looks like from the central bank, I'd hate to see what hurt looks like.

What's next if we don't change course?
Already weak automaker General Motors (NYSE:GM) is perhaps the canary in the coal mine of the further destruction to come. Its aggressive self-cannibalization, cutting back of benefits, closing of manufacturing plants, and early employee separations show the downside of Bernanke's stagflationary interventions. GM was in trouble to begin with, though, and already largely expected to drive toward oblivion. The longer these insane monetary policies are allowed to be kept in place, the higher the likelihood that even stronger companies will succumb.

Capitalism isn't quite dead yet, but the more heavy-handed "help" Bernanke gives it, the worse off it gets. Instead of granting new powers to this utterly destructive agency, Congress should reign in the Federal Reserve before the Fed's meddling brings us the next Great Depression.