Should the Fed begin raising rates and extracting excess reserves? In late 2008, our minders diagnosed a credit crunch prescribing massive liquidity injections to make credit flow again. Unfortunately, the credit crunch was more symptom than disease and masking the symptom has only delayed the necessary surgery. The real economic infirmity was declining capital caused by inflation-induced overconsumption and malinvestment.

Bernanke's Fed operates on the wrong symptom after misdiagnosing the patient. We're not suffering a crunch slowing the credit he believes to be the lifeblood of capitalism. We're hemorrhaging credit after engorging on too much debt. Our debts are staggering. We need additional savings to replenish capital rather than borrowing to keep spending it frivolously....