The debate on the reality of real economy has never been this highlighted as Ben Bernanke has performed valiantly in an unprecedented crisis. But save the laurels for later; the American Senate should grill him, not deify him. He was wrong about deregulation of financial markets, blind to the dangers of the housing bubble, wrong about its impact on the real economy once it burst, slow in seeing the recession coming.

American people have been misled by analyses of the crisis into focusing on mere symptoms, or on the straws that broke the camelÕs back, such as subprime loans. There is still a great deal of toxic financial waste out there in the financial superstructure of the economy, but the real problems go much deeper. One reason for this failure to account realistically for the crisis is that those at the top of the system have very little clue themselves, given the near bankruptcy of orthodox economics. A second reason is that the dominant ideology is designed to naturalize/externalize economic disaster, pretending it has nothing to do with the inner contradictions of the system but is simply the result of human psychology, mistakes of federal regulators, deregulation, corruption of a few individuals, etc. Under these circumstances, what you get from the elites and the media is mostly nonsense, though there are individuals in the financial community, in particular, that are now analyzing the problem at a deeper, more realistic level.

The idea at the top was that the financial explosion could be managed, and a financial collapse prevented. The central banks as lenders of last resort could pour liquidity into the system at critical points to avoid a financial avalanche. And in fact they succeeded in doing this for decades.

From a long-term perspective one can say that there is a kind of mean reversion taking place whereby the financial system and the inordinate profits it generated over decades is reverting to the long-term trend of the overall stagnant economy, which means that trillions upon trillions upon trillions of dollars in capital assets are being lost. And with financialization no longer lifting the economy as it has in decades past, people are face to face with the underlying forces of long-term stagnation. For this reason the best economists and financial analysts are now saying that when the recovery from this crisis begins, perhaps in 2011, it will be an L-shaped recovery, pointing toward long-term stagnation as in the depression decade. Without financialization there is nothing on the horizon to boost the U.S. and other advanced capitalist economies.

The long-term process of the growth of financial speculation or financialization (the shift in gravity of the economy from production to finance) was a process that had to keep going because once it stopped you would have a financial avalanche. As increased debt is used more and more to leverage financial speculation, the quantity of debt increases while its quality decreases.

Baran and SweezyÕs Monopoly Capital had pointed to financial sector expansion as a possible countervailing factor to stagnation, but in the 1960s this was merely potential and had not emerged to any large extent.

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