You have to be a bit of an economic wonk to understand how Bernanke and co fed all this theory to Greenspan. Yes he was the guy in charge but his foundation principles were supported by the group of Neo Classical economists that I mentioned .
The great intellectual debate at the time (through the 90s) was the Japanese deflation and the debate over which monetary policy that the BOJ should implement. The BOJ was very stubborn at first then relented implementing Bernankes ideas. I still have a copy Bernankes speeches to the BOJ 1997 and 1999, where he outlined his revolutionary monetary ideas (QE etc), no one at the time thought they might apply to the rest of the world. Then in 2001 they were enacted globally due the Dot.com bubble bursting, these economists were a relatively small tight group, many of them doing stints at the Federal Reserve. Glenn Stevens of the RBA worked at the "St Lois fed for 4 years, a process of global academic indoctrination took place , so that these policies became the trend. Thats why Bernanke got the job, he was like the rock star of academic monetary policy, very creative and very massively intelligent.
We watched these guys all through the 90s put these BS theories into action and kept warning this would happen.But without proof we were discounted , now the roosters have come home to roost in exactly the way we warned they would.
1930s economist like Hyman Minsky, Joseph Schumpeter all set out why Bernanke would fail, yet they were considered old fashioned and obsolete . To very bright egotistical academics there is very little appeal in re proposing 50-70 year old theories , so they made some new ones up to replace the old ones, then like Frankenstein gone mad they were allowed out of the theoretical academic world into the real world. All of these theories had never been tried yet we had a life time academic taking control of the largest central bank in the world. He and the other neo classicals were given free reign to test their theories not in a lab or a software model but in the real economy.
Why? because they promised the politicians never ending prosperity. the promised they could make the business cycle obsolete and create economic nirvana. The politicians unfortunately got sold hook line and sinker, so they were let loose on the world and here we are today.
Ive got a paper of Bernankes from 1997 which suggest that if faced with a downturn the Fed should lower interest rates, print money and create a RE boom, when people realize how much wealthier they are because of the RE boom they will spend like crazy and this will resolve the economic downturn. In the same paper he suggests depreciating the USD to stimulate exports. How does he suggest they depreciate the dollar? By printing dollars and selling them on the open market.
The problem of course is that it works brilliantly for a long time, the central bankers then claimed victory and were given even more rope. Places to hide debt we invented (thats all derivatives are in a macro sense), it was a great big bandwagon, other central banks, urged by the politicians joined the parade.
Asset hyperinflation kicked in, investors not seeing the benefit of building factories when they could make more money speculating, created huge malinvestment. Why build a factory if you can double you money by buying and asset and holding it till you flip it?.
The problem that were building up were many though, simply blind spots to Bernanke's theories were overlooked. For instance if you depreciate your currency by printing dollars and selling them what might the other players do. Believe it or not in the paper Bernanke puts forward this idea there is not a single word about what other central banks might do.
A high school student might ask "well if you sell dollars the currency will depreciate, but wont that be neutralized if all the other currencies do the same?" yet no one asked Bernanke that same question.
