Post-Bubble Facts of Life:

It was not all that long ago that Mr. Greenspan, Dr. Bernanke and their cohorts were communicating assuredly about post-Bubble "mopping up" policymaking. They mistakenly believed that astute contemporary central banking provided ample knowledge and ("helicopter") firepower to reflate any unfolding bust. There was also the implicit presumption that the benefits arising from the boom far outweighed the manageable costs associated with any possible bursting Bubble.

Today, things are a bloody mess. The Credit system, economy and conventional economic doctrine are all a mess. Washington is a mess. Fiscal and monetary policymaking are messes. A CNBC commentator likened the process to watching sausage being made. I would counter that at least you have a decent idea what the end product is going to look and taste like. And following the theme that the greatest policy blunders were committed during the inflationary Bubble period, I’ll suggest to readers that there is essentially no possibility of "good" policymaking in this especially unsettled post-Bubble period. Today’s policymakers - of all stripes and persuasions - are poised to become forever tarred and feathered. As much as booms create genius, busts are an absolute cinch for breeding contagious boneheadedness…..

To be sure, today’s Post-Bubble Facts of Life create a serious policymaking dilemma. Unimaginable wealth was shifted to "Wall Street" and their client base during the boom, while millions of regular folk were saddled with unmanageable debt and, now, negative net worth. Those on the right side of the inflationary boom accumulated historic wealth, while millions on the wrong side destroyed their financial health. The runaway boom inflated expectations – and now comes the depressing phase of disappointment and growing despair. Of course the populace is ticked off, spurring politicians to vilify and seek amends and wealth redistribution. In this regard, there are no surprises today to those of us that have studied the post-1929 landscape…..

Unfortunately, vilification and payback-time become natural impediments to the policymaking process. Of course, "soak the rich" – the class that benefited so conspicuously throughout the inflationary boom – becomes a focal point for the move to redistribute boom-time wealth. Of course, Wall Street "greed" is vilified, with the general public instinctively backing the powerful political movement to re-regulate the financial system. And, of course, fear of financial and economic catastrophe provides a fertile backdrop for the imposition of government influence and control throughout the real economy.

Doug Noland is a market strategist at Prudent Bear Funds. Their website is www.prudentbear.com.