The Fed Didn't Say That

One of these things is not like the other. But you wouldn't know, to judge by the poorly written Associated Press lead paragraph.

Here's what Federal Reserve Governor Randall Kroszner said. "The Federal Reserve will continue to monitor developments in financial markets and act as needed to support the effective functioning of these markets and to foster sustainable economic growth and price stability."

Here's how the AP creatively reworded that pronouncement in paragraph one of this story. "The Federal Reserve will do whatever is necessary to prevent damage to the economy from the credit crunch that has gripped Wall Street, a Fed official said Monday."

Those phrases aren't even close to the same. Anyone hoping that another rate cut will come along had better pay attention to that "foster sustainable economic growth and price stability," language from Krozner, because if the Fed really does that, Wall Street's Fall Fairy Tale will come to an ugly end.

What we got as a result of the years-long, low-interest-rate credit binge from Countrywide Financial (NYSE: CFC  ) and its peers -- powered by Wall Street quick-buck-turners like Bear Stearns (NYSE: BSC  ) , Citigroup (NYSE: C  ) , Goldman Sachs (NYSE: GS  ) , Lehman Brothers (NYSE: LEH  ) , and hundreds of hedge funds -- was a mess of horrendous home inflation. When that party stopped, all that liquid money seemed to move to stocks.

Unfortunately, the Fed's lever is broken. It can't really fix the home problem, because it didn't provide that credit in the first place. Lazy lending did. Worse, what we're getting now that the Fed has cut rates is another bout of widespread consumer inflation. And a dollar that will soon be as valuable as loo tissue in some parts of the world.

Granted, that may not be enough to keep the Fed from dousing our economy with another dose of cheap credit. (Hey, it's easier than hearing all those people complain, right?) But if I were Wall Street or Main Street, I wouldn't roll the bank account on another dose of cheap money. There may just be some courage and sanity among our nation's fiscal policy makers. And if it rears its head, those excesses -- the nutty asset gains that everyone now believes to be their birthright -- might just dry up and blow away like month-old AP business-desk copy.