The Fed That Cried Wolf

The Fed got really nervous today because oil was surging past $80 a barrel and gold was slicing through $1100 per ounce once again. Whenever commodities start to rally-especially in light of the fact that the U.S. dollar is rising on the Dollar Index-Mr. Bernanke puts out a communiqué about his intentions to someday raise rates.

Ok Ben, do you really mean it this time? I have my doubts. You see, the Fed can easily remove the excess liquidity built up in the financial system. The mechanics behind the process are simple. Sell assets! But instead of doing, Gentle Ben is remanded to just threatening action. He knows he cannot upset the gravy train provided to banks by a steep yield curve. Or upend this nascent recovery by crushing the consumer with increase debt service.

Today he expanded the parties with whom he will someday conduct reverse repos. That threat punched the wind out of the gold market, which fell 1% after being up several dollars in the morning. Perhaps Mr. Bernanke should read less about the Great Depression and more about "The Boy Who Cried Wolf" before markets believe it's too late.