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Edelweiss doctrine

Ben Bernanke is a renaissance man. He was the class valedictorian at Dillon High School in the small South Carolina town where he grew up. He taught himself calculus, edited the school newspaper, achieved a near-perfect SAT score, and was an All-State saxophonist.

When he was 11 years old, long before he turned into a dour replica of one of the Smith Bros. of cough-drop fame, the future Fed Chief had a brush with national prominence when he won the state spelling bee and a place at the national competition in Washington.

According to Wikipedia, Bernanke finished 26th after tripping up on the word ”edelweiss.” Edelweiss, the national flower of Switzerland, was immortalized in The Sound of Music when Julie Andrews sang ”blossom of snow, may you bloom and grow, bloom and grow, forever Edelweiss.”

Four decades later, the chairman of the Federal Reserve is getting another chance to show us all that he now understands what it takes to make something bloom and grow in a frozen wasteland.

Invoking the Bernanke Doctrine, the nation’s top banker activated the nuclear printing presses at Treasury last week and created $1 trillion that did not exist before. He said he would use the new coin to buy long-term Treasury bonds and a big piece of the glut of mortgage-backed securities now held by government wards Fannie and Freddie.

What, you never heard of the Bernanke Doctrine? It’s Ben’s special seven-step cure for a deep deflationary cycle, first enunciated in a little-noted speech seven years ago. It calls for a massive increase in the money supply, zero interest rates and the deliberate depreciation of the dollar.

Regarding the money supply, Bernanke noted in his 2002 speech that ”the U.S. government has a technology, called a printing press, that allows it to produce as many dollars as it wishes at essentially no cost. Under a paper-money system, a determined government can always generate higher spending and, hence, positive inflation.”

Positive inflation. Sounds perfectly harmless, doesn’t it? A little background radiation, perhaps, like that radon seeping up through your basement. Why, you’d have to stand in the same spot for 20 years to get the equivalent of a chest X-ray. Nothing to worry about, right?

Besides, Dr. Bernanke told us in 2002, there is a fail-safe protection against this wild experiment in fake money spinning out of control. ”The U.S. government is not going to print money and distribute it willy-nilly, although there are policies that approximate this behavior,” he said.

Fans of 1950s science-fiction B-movies already have guessed what happens next. The esteemed scientist’s crazy young apprentice gets hold of his experiment and unleashes a catastrophe.

Dr. Bernanke, meet Mr. Geithner. Economic theory, meet chaos theory.

”Willy-nilly” does not begin to describe the nonsense that has been coming out of the Treasury Department since the bottom dropped out of the global financial system in September.

We now know that the $182 billion that was funneled into AIG by the government went right back out the back door and into the hands of Hank Paulson’s pals at Goldman Sachs and other allegedly solvent Wall Street casinos to cover their exposure to AIG’s bad bets at exactly 100 cents on the dollar. No write-downs, no negotiated value. In the underworld, they call this money laundering.

We also know that Treasury gave Bank of America $20 billion and ordered it to proceed with the ingestion of over-leveraged basket case Merrill Lynch in January even after it was discovered that Merrill had concealed $15 billion in fourth-quarter losses and rushed out $3 billion in bonus payments to its in-house swindlers. John Dillinger, take a seat, there’s a new bank robbery king.

But this is just tip-of-the-iceberg stuff compared to Geithner’s scheme to restart the mortgage-backed securities merry-go-round with a $1-trillion slush fund for private investors. If everything goes according to Timmy the tax fugitive’s plan, the vultures will make a killing. If not, the government — meaning American taxpayers — will absorb the losses.

The only policies we know of that approximate that behavior are enforced by guys with crooked noses who wear track suits and hang out in Brooklyn social clubs.

President Barack Obama took a moment during his recent star turns on Leno and 60 Minutes to let us in on ”a dirty little secret.” The banking shenanigans are ”all perfectly legal,” he said with a shrug and a disarming grin.

Here’s the dirty little secret, Mr. President:

The swindlers on Wall Street bought the U.S. government with almost $5 billion in campaign contributions and lobbying fees. They wiped out all the banking regulations and turned the financial system into a high-rolling casino. They went bust, but they knew their hired hands in Washington would make them whole again and stick the taxpayers with the bill.

This explains why the government now has an ”ownership” stake in a huge swath of the financial system without any ownership rights. It explains why the same buccaneers who engineered the fiscal disaster are still on board for the ”solution.” It explains why the Justice Department and the FBI have been silent during the biggest heist in history, the looting of the U.S. Treasury.

And it explains why the money supply is going to bloom and grow, bloom and grow, until ”positive inflation” devours what is left of the net worth of the United States.

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