Bernanke Won't Rescue Market

If you've been following this blog, you know I'm a bit obsessed with interest rates. I'm of the contrarian belief that inflation is tame, tame, tame and to the degree it pops up as in oil price hikes the best way to tamp it down is through direct action not through the blunderbuss weapons of interest rates. Now with the credit crunch and all that excess paper out there, some people are wondering whether Bernanke and the Fed might step in. No way, I say. They won't and at this point even a rate cutter like me would have some second thoughts because of the signal it would send about the availability of credit when people get overextended. Look there should have been more regulation in the subprime market and predatory lending practices need to be reined in. (Memo to John Edwards: This is still a good issue. Why have you stopped talking about it?) But to cut rates now would probably encourage bad credit practices. I suspect the conventional wisdow in this case is right. We just have to let the market work this out, let the financials and Bear Sternses take their hits before we can get back on track.