It seems that everyone who didn’t see the recession coming now sees recovery, Mr Bernanke’s “green shoots.”

Get real, folks. Consumption has been sustained for years by massive increases in debt. Although this chart doesn’t show it, it is slightly out of date, total credit market debt has essentially stopped increasing. Were it not for the huge increases in government debt over the last few quarters, it would be falling rapidly.

But it doesn’t matter, when it stopped increasing the party was over. The failure to increase means that borrowers are no longer able to borrow to pay the interest on their debts. That is the “Minsky Moment“. Neither Mr Bernanke nor Mr Geithner can put the bubble back together again.

I remember when I was a teenager working on a construction crew for the summer I was given the job of turning off a water main so that a new connection could be made. This was a big 36″ main. So I was driven out on a country road, and the crew boss opened up a vault in the ground, which contained a large valve and a large hand-wheel. He explained to me that my job was to stay there and, every 15 minutes, give the hand-wheel a quarter turn. He explained that the energy of the water in the pipe was such that if it was turned off too quickly, ten miles of pipe would jump out of the ground. I didn’t know if that was true, but I certainly wasn’t going to conduct the experiment, so I spent an uneventful day turning off the water, a little bit at a time.

I feel the present situation is like that. There’s still quite a bit of residual money in the system, because a lot of the debt hasn’t yet gone bad or been recognized as having gone bad. But, slowly but surely, the money spigot is being turned off, and there’s nothing anyone can do about it. Every 15 milliseconds, another loan goes bad (OK, I made that up) and the money spigot closes a little more. But look, in California, the unemployment rate is 11.5%, and the government layoffs haven’t even begun yet, even though the government is essentially out of money. Other states are in the same situation. Denial, folks. This is not “green shoots”, this is a disaster slowly unfolding.

Mr Bernanke can create inflation. But he can’t bring an economy that has been destroyed by years of under-investment and mal-investment back to life by doing so. He can create a Weimar or a Zimbabwe, an economy destroyed by hyper-inflation. I just bought a small selection of recent Zimbabwe banknotes, which I have framed in my workroom. I paid $14.95 for Z$180 trillion. Will I have a similar collection of US banknotes a few years from now? It is up to Mr Bernanke. But the brutal fact is he didn’t see this recession coming, he doesn’t understand it, or know what caused it, and he doesn’t have clue about how to restore the economy to a stable path. He is the proverbial bull in a china shop, not malevolent perhaps, but clumsy and unpredictable because he doesn’t understand the consequences of his actions.