Mr Stelzer, the rocket that is the American economy has had its fuel supply cut off because of the credit crunch. Bernanke cannot create credit faster than it is being destroyed by the credit deleveraging and if he tries to do so he will effectively bankrupt the American economy. The deflationary spiral has already started and nothing can stop it until it has run its full course. However this may be what America needs to awake her from the deep slumber of all and sundry over the past decade.

anthony, london , england

Gold is well known as a long term protection against inflation.
Currently with REAL US inflation at nearly 10% it is foolish to TODAY have money in T-bills, US stock funds (some foreign funds, as well as currencies, are still doing GREAT), bonds or CDs. Buy gold. The price of gold has more than tripled since 2000, Up 30% in 2007 and up more than 15% just this year alone. The nuts in DC have still not understood that we can not inflate our way out of the economic problems that are being caused BY the inflation of currency.

When Bernanke and the gang get serious about inflation like Reagan and Volcker did in the early eighties and RAISE interest rates 3 successive times, THEN it will be time to sell your gold. I would NOT hold my breath. They just do not get it. If you buy gold you will have some capital left to help rebuild the world when the dust settles on the remaining economic rubble in America AND Europe. I think Asia will fare better. They are NOT selling their gold!

DenisL, New York City,

See the remarkable 3.5 hour documentary "The Money Masters" (Google Video) for the bigger picture.

J Richards, Birmingham,

We must put risk back into the system. Shareholders can lose money when they make bad investments and banks can go under for the same reason. To think otherwise is foolish, and to consistently bail out those whose ideas and actions have lead to failure is to insure more of the same.

Dennis, Seattle, WA, USA

'Bank Credit Multiplier' (mentioned by Mark of Havant) may sound like an(other) obscure technical term, but it hides the fact that 95% of *our* currency is created by banks lending it out. The cost to the banks? Zilch, zero, nowt. If I could run a business where I sell my product at a significant price (bank interest rate on loans), but get the raw material for free and in almost unlimited amounts, well....?!! Even better if when my business tanks, the taxpayer rescues me!!

This whole crisis is due to profligate lending by self-enriching moguls with no fear of loss. Is it not time we charged the banks interest on our money that we allow them to create? Pay for your raw materials, you bankers!

Conall, Margam, South Wales

"The second problem is that the Fed is a tiny player in the mortgage market. The $200 billion of mortgages Bernanke will be taking on are a drop in the ocean that is the $11 trillion mortgage market." That's the dumbest thing I've heard all week, and the week's almost over. 200B is approximately 2% of 11T, and is hardly a "drop in the ocean". Just how much water would constitute 2% of the ocean, do you think? A whole butt-load, that's for sure!

Ken, Blandford,

Murdoch and Stelzer are directly responsible for the wave of propaganda that led to all the deregulation, tax cutting, neo liberalism which led to the current crisis.

Murdoch and Steltzer backed every right wing neo liberal regime,every deregulation and every bubble of greed and waste, so it is interesting to see them now advocating Socialism for the rich. Welfare for the poor is too expensive apparently, but 200 Billion plus of welfare is a price well worth paying to protect the wealthy.

If Socialism is good enough for the rich then......

A NiN, Leeds, uk

Warnings of a credit bubble and the inevitable correction have been on the agenda for a number of years. More enlightened observers have also highlighted the scope and implications for the Bank Credit Multiplier to go into reverse, which with the deleveraging of the hedge funds is now clearly happening.

With the amount of negative press coverage it is only a matter of time before consumer spending is impacted and it is quite possible the tipping point has been passed especially in the US.

There must be a significant risk of rising unemployment feeding a prolonged worldwide recession.

Liquidity pricing concerns with VaR models have also been widely publicised.

In short, some Banks management and shareholders have benefited from a one way bet on rising asset prices and the ability of the economy to absorb increasing (relative) debt levels. Where the strategies fail, both should pay the price (subject to protecting depositors) and a more cautious and humble Banking Industry may emerge.

Mark, Havant, UK

Mr Stelzer's record for prediction is so bad that I find this article encouraging but it is surprising that after enumerating all the reasons why the authorities will have to step in to rescue the banks his conclusion is the opposite. The fact that Alan Melzer is still preaching doesn't mean that he is right and only an ideologue would argue that the potential long term benefits of allowing banks to fail would outweigh the immediate and concrete costs. I also note that nowhere does Mr Stelzer note that the mortgage and real estate markets would never have got into this mess if the Federal Reserve, and Alan Greenspan who no longer looks quite so brilliant, had stepped in earlier and required more prudent behaviour on the part of lenders. The reminder is that if it looks too good to be true it almost always is. To give some credit where it is due, the Economist had been saying for the last couple of years that there was a dangerous real estate bubble all over the world.

Ian, Frederick , USA/MD

"Only if the shareholders are first wiped out, or if the taxpayers gain a real opportunity to profit in a recovery, can a government rescue package avoid becoming an invitation to a repeat disaster."

That is true Irwin, but consider a bail-out plus a re-think of the regulatory system, hand-in-hand, and perhaps you wouldn't need the shareholders to tank before moving in to save the system.

Rob, London, UK

Exactly. Shakespeare says many a great evil begins as a great good - or attempt at it. Consider the yin and yang. We assume evil comes from active criminals who create scenarios, but yin theory (if I can use such a term) says a prospective thief need only allow circumstances to develop on their own and then the objective mind may find the assumed trust and betray that trust to yield successful gain.
Savings and loan began as an attempt to help people and ended as large scale theft, so too the unregulated internet, and today's free form banking enterprises.
One may rely upon the American form of capitalism to thrust forward such opportunities as will create recessions every five or ten years. The quote about religion needing sin is right on the mark.
It helps to know the cultural mileau. One can't be a mind reader. As an aside I know a lot of people in my parents generation that lost considerably in 92 and recently- who will bail them out?

glenn schaefer, holbrook, USA

Changed your tune Irwin?

Nacho, Spain,

But what is the US electorate making of the Fed's policy of inflating away all that debt? From this side of the pond these dire days look like the Weimar Republic revisited.

Paul, Coventry,