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Ben Bernanke remains boxed in by the politicized nature of his role. The Fed Funds Futures market is begging for rate cuts, so he is shamelessly signaling that he will deliver on those market expectations. Hence the “Helicopter Ben” nickname. He is who he is. History will not look back on his legacy kindly.

Bernanke is finally right, the domestic “inflation outlook has improved somewhat”, but do not mistake this for Bernanke being early with that call. He has been calling for an inflation slowdown since 2006. In this speech, he is also moving back to the rhetoric that “risks to downside growth have risen.” Combined, these messages on inflation and growth, in English, mean that Bernanke is definitely going to cut interest rates on October 29th, 2008.

In the end, I think the only way out of this mess is to raise rates.

I understand that's not consensus, but I also understand that my macro calls haven't been for the last nine months. I am not making this call for the sake of being contrarian. I am making it because the only way for a capitalist who is flush with cash to earn a return is to give him/her a rate of real return. Cutting nominal interest rates below 2%, effectively re-creates the Greenspan scenario of 2001-2003, which gave birth to this mess of a leverage cycle to begin with.

KM