(small excerpt of transcript) … JAY: Yeah, Leo. Leo, what about that? The liquidity has helped stop the banks from crashing, but it hasn’t done very much for the economy.
PANITCH: No. I think that the lesson that Bernanke learned–and he wrote his scholarly work on this–was that you could keep private banking going. The Depression wouldn’t have been prevented, and the institutional capacity wasn’t there then, but he learned that what you have to do when there’s this scale of a financial crisis, with knock-on effects on the economy around the world immediately–yes, he has been applying in that sense Friedman’s lesson.
But it–if you save the private banking system, that certainly doesn’t mean (and the Depression showed us this lesson) that the banks will necessarily put what’s–that liquidity into investment. And they haven’t. And they didn’t during the Depression. The lesson that needs to be learned is: to get us out of this situation (it’s not as severe as the situation was in ‘33), one cannot rely simply on saving the private banking system.
GALBRAITH: We agree on that. But I just want to come back on this, because I think Bernanke’s position actually was, before the crisis, that they did have the power to prevent a long-term slowdown departure from potential GDP that in fact they didn’t have the power to prevent. So I think Bernanke fostered a exaggerated view of the Federal Reserve’s power in this matter.
JAY: Hang on one sec, guys. So we’re going to move to a second segment, and the question we will pick up on is: if then all this liquidity the Fed’s putting into the banks is not going into the economy, which is why many people are saying there needs to be a new New Deal and people are saying it needs to be a new green deal, well, if that’s what’s needed, is it possible given the politics of today? And that’s the question we’re going to take up in part two of our interview.
Thank you, gentlemen, for joining us.
And thank you for joining us on The Real News Network.