Bernanke has it in his hands to control the spiraling credit crunch by lowering rates (or even indicating that he is seriously thinking of doing so) or to keep credit relatively tight and push the market and the economy into a real danger zone. Greenspan, in the past, made a habit of getting in front of potential shocks to the economy by acting to forestall them. But, Unlike Greenspan, Bernanke -- coming out of the academy and distant from the real world -- is willing to let the market play out on its own. It is a hell of a time to have an academic in this post.
Their is a real difference between those in the university and those not. And, the difference is experience -- real experience -- and a predisposition to "studying" things and "letting things take their course." Greenspan was great, in the main, because he could see things coming and would take action. His successor seems far more inclined to just let things happen, preferring to worry little about the short term in favor of staying true to his focus on inflation. Perhaps, it would be less troublesome if inflation were really in check for the moment as Bernanke believes. But anyone buying goods and services -- and gas at the pump -- knows it is not as convenient indicators suggest.
We are in serious times, and they are about to get worse. The Fed has room to lower rates, and that is the obvious and necessary step to take. Nonetheless, the consensus is that Bernanke will neither do this on Tuesday nor even suggest that he might a little bit out. If he acts as planned, we will see a real economic slowdown, one that will hurt a very large number of middle-income Americans.
If I had one suggestion for Bernanke at this key moment in his tenure it would be to forget all he learned in the academy and talk to some advisors with real world experience. But most academics think they know it all, and he probably does too.
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