The Poor, rationing between food and fuel, now reaching to the lower middle class, which Mr. Bernanke when addressing food & fuel doesn’t consider as real inflation conflicting with Europe’s measurements; or propping up the S&P and Dow by maintaining a cheap dollar and pushing exports.

Unfortunately his positive arguments for QE is weakened by the Large corporate entities going rapidly offshore to avoid paying American Corporate taxes. It’s tough when your chosen constituents stick it up your rear.

Fiscal policy tools are largely controlled by Congress and its tax and spend initiatives and legislation. Inconsistent and growth counter-productive fiscal initiatives by the Congress, including anti-growth marginal tax increases, health care cost increases foisted on businesses and consumers, non-productive regulatory changes that amount to ‘closing the barn door after the horses have left the barn’ have created uncertainty which prevents or disincents rational business and consumer spending from energizing GDP and job growth. GDP growth and job creation would also increase Federal tax revenues without increasing marginal tax rates, which is a well recognized by eonomists as counter-growth tax policy. Politicians largely ignor the reality of such economic realities as they seek quick fixes which sound good to some voters but have adverse effects on the economy. Bernanke is doing his best to stimulate growth with his available tools. Congress now focuses on budget cutting and tax increases which stiffle growth. Spending control and deficit cutting is a great goal, but must come second to growth initiatives in a very weak economy. Economic growth will produce tax revenues and jobs and therefore help the deficit problem, and also take pressure off the dollar.

The quality of a solution depends on the quality of the definition of the problem. Poor definition leads to poor solutions, and often to none.
Bad solutions lead to second and third generation problems that can be worse that the original ones.

If you wrongly define a problem, you cannot find a good solution, because you’d be looking in the wrong place, and using the wrong tools.
The ongoing recession / depression is not a problem in itself – It is the manifestation of a problem, i.e. a symptom.
Similarly, the bubble that preceded it is not a problem in itself, but the manifestation of a problem, i.e. a symptom too.

So what is the underlying problem that so far has manifested itself in a housing / financial bubble, then morphed into a recession, and is now is being transformed into a catastrophe?

Clearly, this problem is inefficient allocation of capital across the US economy, and apparent growth (pseudo growth, bubble) morphing into negative growth, in the form of a recession with chronic high unemployment.
What’s been causing this efficiency problem is the political manipulation of markets, through subsidies, discriminatory taxation, bailouts, and other distortions imposed by legislators from both parties in the past decades.
The problem is basically a social and political one.
As long as laws favor one economic sector (i.e. Housing & Mortgage, through tax laws) or activity (financial markets) over another, there will be severe distortions in the US economy in the form ‘credit crunch’ for many businesses that can create real (i.e productive) jobs and healthy economic growth, and on the other hand, ‘bubbles’, i.e. inflated prices in the subsidized markets, such as the Housing / Mortgage markets.
What the Fed and this Administration have been doing so far is applying extreme measures to solve a problem they have erroneously defined. Doing so is further weakening the US economy, instead of healing it, and putting it on the right track.

For those Chinese not steeped in North American lore, a Mexican standoff is a slang term defined as a stalemate or impasse, a confrontation that neither side can foreseeably win. The term is most often used in lieu of ‘stalemate’ when the confrontational situation is exceptionally dangerous for all parties involved.

In the end, there will be a global deal and global, commodity-backed ecurrency – and a lot of damage getting there probably. Sooner the better…

I was looking forward to the conclusion that such an astute author would supply at the article’s closing.

I have to say that the last paragraph of the article is a disappointment. The author points out what IS NOT the solution, then slips out the back, Jack by supplying an plumbing analogy as to what IS the solution.

What exactly would that “solvent” consist of? What “carefully calibrated measures” will unglue the credit markets and promote a stable outlook for investment?

I’m not just being flippant. I agree with yr2009 and diddums that QE2 is a dreadful idea.

I have some ideas of my own, but I’m genuinely interested in what this author might suggest and how he/she thinks those measures might play out.