Jeffersonian Libertarians would indeed call for the end of a central bank in this country (the USA) as it violates the US Constitution. Unfortunately, the vast majority of so-called Americans demonstrate such profound ignorance of their own governing documents it staggers the mind, but I digress.

Also, no where did I state (and perhaps you are not referring to me, but just making a statement in general) that economic activity be absent of law. As a Libertarian, the law that forms the basis for regulation and the means by which violators of the law are punished is natural law–the law of Locke, Jefferson, et.al.–the law that gave birth to the US Constitution–the document that despite its flaws is the single greatest means of regulating government–the greatest threat to liberty the world has ever known. Central banks, including the US Fed, are but a tool of criminal bankers to transfer wealth and seduce governments. Not that I have any strong feelings on the subject…

Let the bad banks be wound down and let the strong survive. Oh yes, there are a large number of strong banks not involved in pass the parcel derivatives trading and who didn’t write huge amounts of NINA loans. They’re the ones being screwed right now for their prudence.

This way, we would have a banking crisis perhaps every 100 years rather than every 20. It is impossible to contain irrational exuberance in the long run as generational handover occurs and memories are not passed down, but we can at least try to maximise our period of stability.

Banks are still marking their crap at or close to par, including the very worst – commercial mortgages, 2nd liens and HELOCs. Anecdotally, they’re even going down to the auctions for their own repo’d properties and bidding par (ie 3x what anyone else will pay!), just so they can fraudulently shore up their balance sheets. How long can this realistically continue?

In addition, they are being propped up by governmental lifelines being made possible by the massive issuance of Treasuries, which cannot continue indefinitely, lest the government trash its own currency. If the vaunted recovery does not come (and why/where should it come from? consumers who are more leveraged today than at any point in history? yeah right), we will be in a Japanese zombie bank scenario with the lies being passed round in a huge circle jerk of BS.

RTC 2? Yes please.
Glass Steagall 2? Yes please.
Prosecution for the modern day Keatings? Sign me up.

All perfectly achievable goals with the right political will.

For instance, the Libertarian Party platform mentions all of these things but nowhere does it explicity state that it wishes to abolish the Federal Reserve, though it does call for the repeal of income taxes. The party does abhor “inflationary monetary policies” and calls for a repeal of legal tender laws. Being a Libertarian or having Libertarian leanings is not just about monetary policy.

One final word: anyone who is foolish enough to believe that self-regulation in finance works – that allowing an economic ecosystem to flourish without the government enforcing law and acceptable codes of behavior – is either an anarchist or not particularly realistic.

This is all the more so, as the lessons of the past are commonly less than totally clear. When what is at stake is the interpretation of historical events one does not want to see repeated — and here, depressions have much in common with wars, and failures in wars — a crucial question is generally what would have happened, had some alternative course of action been pursued. But although some such counterfactual arguments are clearly much better than others, there are commonly massive uncertainties about them — particularly in relation to the possible unintended consequences of such alternative courses.

And also, even where the argument that an alternative course would have produced better outcomes in the past seems overwhelmingly cogent, it is commonly a moot point whether present conditions are sufficiently similar to make its lessons relevant.

In Bernanke’s case, his academic career was largely built on developing the Friedmanite view that a different monetary policy, after the collapse of the Twenties stock market bubble, would have averted the Depression: and on this basis he produced his famous advocacy of ‘helicopter money’. Precisely what many of Greenspan’s critics had anticipated was that the unintended consequence of his use of monetary policy to prevent the collapse of bubbles impacting the real economy would be the blowing up of further bubbles: and that the outcome would be a dead end from which there was no good means of exit.

For Bernanke to concede validity to such criticisms would involve calling in question the validity of practically everything he has done, both as policymaker and as academic. It would mean his having to ask himself whether his whole life might have been a disaster.

Unsurprisingly, then, when the anticipations of his critics were born out by the facts, his response was denial. When the ludicrous — but not highly dangerous — technology shares bubble was replaced with property bubbles threatening to bring down the whole financial system, he insisted that there were no such bubbles. As for his championing of the ‘savings glut’ argument — this again looks like a man determined to disavow the suggestion that, far from creating a ‘Great Moderation’, he and his ilk were largely responsible for creating a fundamentally unstable global economy.

True to form, Bernanke now seems to have convinced himself that the events of a few months ago were an irrational panic, to which his ‘helicopter money’ policies have provided an adequate answer. So we have at the helm of the most important central bank in the world someone whose view of the global economy is delusional.

What Bernanke is also certainly not going to face up to is the force of the argument that he and Greenspan have debauched the Western financial services industry. Investment managers who concentrate on fundamental value simply go to the wall in a world of serial bubbles. The name of the game becomes judging into which asset class the torrents of liquidity unleashed by central bankers are going to go, riding the bubble, and getting out before it bursts.

It may indeed be the case that there are, at present, no better options than Bernanke. But to say that seems to come uncomfortably close to suggesting that there are no figures at the heart of the U.S. policymaking establishment who are capable of coping with a crisis which the ineptitude of the economic profession has largely created. It is a bit as though, when Lincoln was casting round for alternatives to George B. McClellan, people had come to him and said: Of course, we know he hasn’t a clue how to win a battle — but that’s what all our West Point people are like: all useless.

1. 70% of the US GDP was based on consumer spending. The consumer is out of work (9.5% U3, 17% U6) and broke (CRE collapse, foreclosures and loan defaults rising, record credit card balances and defaults).

2. Production has fallen by depression era amounts in percentage terms.

3. Protectionism has begun with China restricting exports of key rare metals – http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6082464/World-faces-hi-tech-crunch-as-China-eyes-ban-on-rare-metal-exports.html.

4. Record budget deficts, record falls in tax receipts, record issuance of government debt in the UK, Ireland, USA and several more key countries.

5. Baltic Dry Index shows global trade at a near standstill in relative terms when compared with years 2000 – 2007.

6. Government money printing and stimulus programs can only temporarily replace consumer demand and will only put off the “deleveraging” (i.e. global GDP reset to a new lower level).