I have read enough in the Fed-apologist media about Europe’s troubles spilling over to our markets to last a life time. I don’t think they are intentionally lying; they are journalists who have no clue about what is going on. Markets are smarter than they are being given credit for, and what might appear to be irrational is only because of the framing of the reports.

All through the Great Moderation there were sovereign debt issues. Asia had a financial crisis in the late 1990s, the Soviet Union collapsed, and there were problems with the Euro in 2000. But they didn’t hurt us that much, certainly not to the point that these other crises became ours, because the Fed was actively managing it to lessen the blow and keep a lid on panic.

I am not saying that what is going on in Europe shouldn’t cause demand problems here. It certainly should, but in addition to that, markets have been assured that the Bernanke inflation targeting Fed is not where it should be in terms of being willing to “do what it takes to manage a crisis,”  but just the opposite. Bernanke has imported the terms of the Maastricht treaty and applied it to our policy. That means that taxpayers have to do the bailing, that extra money to deal with the crisis doesn’t just appear on trees. This is why we had the financial crisis in the first place, when it shouldn’t have been according to the basic purpose of the Fed. An ounce of prevention is worth a pound of cure. But I digress.

We are now being hit by the crisis in Europe simply because our central bank isn’t on the ball and isn’t expected to be. It is sending the signals that it isn’t going to do anything until there is a need to do something, and by then it will be too late.

In addition to that, Bernanke has been out talking about the fiscal cliff, which really is a threat that the Fed will not respond if congress doesn’t deal with expiring tax cuts and deficit problems. He wants a lame duck congress to do things voters do not want in order to be more complicit with his policy intentions.

Markets listen to this stuff and take the appropriate action based on what they expect the future to be like. And with Bernanke, the only thing that can be counted on is for the Fed to do nothing appropriate about anything, and then do too little after the damage has already been done.

What congress or Tim Geithner needs to do is go out and squish Bernanke like a bug, and it will stop hurting us. There is no reason for this to go on, and it needs to be stopped.