Federal Reserve chairman Ben Bernanke gave no indication of planning additional monetary stimulus when he testified before Congress on Thursday. As unemployment in the United States inched up a bit in May, there was an expectation in markets that the central banker would inject more money into the economy. He didn’t but he isn’t backing down on his expansionary money policy either.

Despite two rounds of quantitative easing from the Fed, unemployment still hovers over 8 percent and it can hardly be said that confidence is restored.

The policy has not fundamentally improved economic conditions in the United States either. Indeed, it may have undermined a sense of urgency on the part of lawmakers to do so. That is why Detlev Schlichter, author of Paper Money Collapse (2011), likens it to a giant placebo. “It is not true medication as it evidently does not address the economy’s fundamental ills but a tool for nationwide mass hypnosis.” It does so by driving down interest rates and cajoling investors into economic activity.

“In a free market,” explains Schlichter, “low interest rates usually signal the availability of a large pool of voluntary savings that desires to be invested and to be translated into productive assets.”

But in the absence of a healthy economy that lifts equity markets, and in the absence of savings that can be used for true capital formation, a mirage of health and savings and capital can still be generated with the help of the printing press.

So naturally, by keeping short-term rates below .25 percent for over three years and purchasing some $2.3 trillion in long-term securities under the guise of quantitative easing since the financial panic began in December 2008, the Federal Reserve has managed to create the illusion of a recovery but it has done so by inflating a bubble that can only have set the stage for the next crisis.

Moreover, as Schlichter points out, the repeated capital injections into financial markets have prevented a necessary recalibration of the banking industry and therefore hampered a true recovery. Bad debt is still on the books of major financial institutions and preventing them from investing in businesses. Or, as Schlichter puts it, “the policy sabotaged the redirection of scarce capital from the bubble industries that had benefited from the credit boom toward new, productive and more sustainable employment in other sectors.”

If a large-scale misallocation of resources and substantial mispricing of assets, caused by the credit boom that popped in 2007, are at the heart of the crisis, says Schlichter, “then you may agree with me that monetary accommodation will not only make the economy not better, it actively hinders the healing process. And it does so by providing a temporary placebo that seems to quickly lose its effectiveness.”