Remember January 22, when Bernanke, in a panicked attempt to stop a slide in the equity market, maniacally slashed the Fed Funds rate by 75 basis points, the largest cut in history?
Like an overdosing junkie responding to a shot of adrenaline to the heart, the market responded with a sharp rally. It went from down 465 on the Dow to down just 128. The rally continued into February as the markets acted like easy money was a perfect solution to all of our economic problems.
Bernanke followed up with another 50 basis points of cuts, bringing the Fed Funds rate to 3%, less than the rate of inflation. That's right, negative real interest rates. I'm turning Japanese, I think I'm turning Japanese, I really think so.
All for naught. Today the financials are back to the January 22 intraday lows. Bernanke has spent most of his bullets, and the credit crunch monster keeps coming at him. And all that shooting woke up the inflation monster sleeping behind him.