I wrote the other day that I thought Bernanke would ease 1/2 a point. Given the state of the financial markets, that is what he should of did. Before I go any further, let me say that I am looking at this in light of the economic & social framework that is currently in place. In other words, it is not what is best for the long term health of the economy or country, but what is likely to happen in light of the institutional framework we operate in. The financial markets are addicted to counterfeit money, which is the heroin of the financial markets. The fed and banking system basically create credit out of thin air and the money supply increases as a result.

Where does all that money go? That is a topic for another discussion but at the moment a lot of it is currently being destroyed. As all the malinvestments now rise to the surface, defaults are occurring. Risk premiums have risen and credit is tight. Those who assumed all that bad risk are now crying for more heroin, like a strung out addict….

But reality has set in. Commodity prices are rising. The truth is that the Federal Reserve does not really care about this. It now feels that growth is more important than inflation. They are both important, but when you live in the very short term your priorities are not in line with the long term health of the economy.

What the Federal Reserve has done since the Bretton Woods agreement was dismantled in the early 1970’s is, in my view, criminal. The value of the USD is down over 80% since that time, and that is a long term trend that is well intact. History has not been kind to paper currencies that are not backed by anything of value. But you cant have fiscal discipline when you have an empire to run, countries to invade, and special interests to take care of….

Bernanke did not have balls enough to lower rates .5% at this last meeting, but look for the Fed to eventually lower rates down to about 3.5%. At a minimum, that is what the junkie needs to get back on his feet and start another bubble.