The following article originally appeared on OpEdNews.com.

Synopsis of a report (http://www.moneyandmarkets.com/bernanke-hallucinating-40007?FIELD9=1) by financial analyst Martin Weiss:

If Fed Chairman Ben Bernanke honestly believes what he said at Jackson Hole on Friday — that he can save the economy by printing more money and buying more bonds — he’s lost his mind.

Consider the facts, Ben: Through the first quarter of this year, you and your Fed printed $1.5 trillion of paper money and bought $1.5 trillion in mortgage bonds, government agency bonds, and Treasury bonds. And yet the entire effort was a dismal failure; the U.S. economy is still sinking and most large American banks are still weak.

The underlying reason for this sinking and this failure: While the government has been borrowing massively, nearly everyone else has embarked on unprecedented debt liquidations.

How do we know? Because that’s what the Federal Reserve itself is reporting — unambiguously and conclusively.

Based on the Fed’s latest Flow of Funds report, governments are borrowing massively. But the collapse in private sector credit is so dramatic that among ALL the major categories the Fed tracks, NOT ONE is expanding its debts. Rather, every single sector is in advanced stages of unprecedented and massive debt liquidations.

Specifically:

* Corporations are cutting back on their bonds at a record pace of $355 billion per year …
* Banks are cutting back on their lending at the yearly rate of $273 billion, and …
* Worst of all, mortgages are being liquidated at a record-smashing pace of $560 billion annually.
* Finally, the Fed is reporting net cutbacks in consumer credit ($39 billion), open market paper ($154 billion), agency bonds ($16 billion), and other loans ($174 billion).

And remember: We’re not just talking about a slowdown in the pace of new borrowing — the pattern we used to see in typical recessions of the past. No! These are actual net reductions in debts outstanding — the basic stuff that depressions are made of.

In sum, nearly all the money Bernanke has printed — plus all the money he has supposedly poured into the economy — is going nowhere except to reduce indebtedness and accumulate in corporate coffers. In other words, from the point of view of benefiting the economy, down the drain. So he and the Fed are essentially running on a treadmill, accomplishing nothing that will help bring back the economy.

The potential impact of this situation cannot be underestimated. Here’s why.

Including both the government and private sectors, the total new credit created in 2007 was $4.5 trillion. But now it’s running at an annual pace of about ZERO! That $4.5 trillion was lot of money — and it’s all money that’s no longer pouring into the economy.

Understand that this kind of reversal is unprecedented. This has never happened before in modern times — not even during the deepest recession of the postwar era. During the Great Depression? Yes. But in proportion to GDP, the debt buildup before the Great Depression — as well as the debt liquidations during that Depression — were not as large as they are today!

And it’s getting worse! Despite everything Bernanke has done to try to stop it, the debt liquidations are accelerating — especially in the mortgage area. Consider these basic facts:

Back in 2005, lenders issued $1.4 trillion in new mortgages over and above those that were paid off or went bad — a fantastic amount of fresh new money pouring into the housing and construction markets.

But by 2008, lenders had cut back their new mortgage lending by a whopping 94%. As a result, the housing industry virtually died — an unmitigated disaster for the economy.

At that point, pundits assumed it was the end of the decline. On a net basis, the creation of mortgages in the U.S. was practically down to zero. “So how much further could it possibly fall?” they asked.

Meanwhile, Bernanke apparently assumed that by buying crazy and unprecedented amounts of mortgage bonds, he could somehow stop the decline — or at least offset its impact. But the decline in the mortgage market didn’t end there in 2008. And in 2009, it got even worse — a lot worse! Not only was new mortgage money largely unavailable, but OLD mortgage money was pulled out. Result: We saw net mortgage liquidations of $283 billion!

And for the first quarter of 2010, as already mentioned, the Fed reports net liquidations running at an annual pace of $560 billion, the worst in history.

The Unavoidable Consequences

The impact of these mortgage liquidations is going to be more enduring than any monetary policy, and is bigger than the likely impact of any government policy.

Bernanke can try to make believe these impacts and consequences don’t exist. But the rest of us cannot afford to participate in this kind of make believe. We must face the truth and understand the likely consequences that he’s trying to avoid talking about.

Consequence #1. Though many on Wall Street would like to believe otherwise, the truth is that in this situation, Bernanke is nearly powerless. For no matter how many more bonds he has the Fed buy, he cannot save the (alleged) economic recovery. Sure, he could push 30-year fixed mortgage rates down some more. But the bald truth is that even the lowest mortgage rates in recorded history haven’t thus far made a bit of difference. In fact, despite their unprecedented low rates, mortgages are being liquidated at an ever FASTER clip. Home sales are falling even MORE rapidly than they were before.

Consequence #2. Double dip. The double-dip recession you’ve been warned about is now well on its way. Meanwhile, administration economists still swear on a stack of Bibles that the double dip is not in the cards; and corporate economists say the probability of a double dip is only 20 to 30%. This is sheer delusion.

Consequence #3. More bank failures! As a whole, despite government bailouts and badly compromised attempts at real regulatory reform, the nation’s banks and thrifts are no healthier today than they were before the onset of the debt crisis. The main difference between now and then: This time the government is unlikely to have nearly as much political or financial capital with which to try and bail them out.

Print PDF