Could Bernanke be Planning a "Sting"?

Most investors are certain that the Federal Reserve will announce a new "quantitative easing" (money printing) program at its next meeting in November. A CNBC survey on Monday reported that "nearly 93 percent of the 70 respondents, including economists, fund managers and traders, believe the Fed will boost the size of its portfolio, up from 69 percent in the survey two weeks ago." 

Everyone believes that Bernanke and the Federal Reserve have it in for the dollar. In 2008, Bernanke would constantly jam the bears by announcing some liquidity program on an options expiration Friday. That is because the financial system was on the verge of deflationary collapse in 2008 and it needed a bit of inflation.

But actually, bankers and central bankers love deflation. Does anyone remember the William Jennings Bryan "cross of gold" speech in 1896? 

That speech was "very 2010," for it was part of a contemporary inflation/deflation debate. There were farmers and Westerners, who were net borrowers and interested in an inflationary silver standard or at least a bimetallic gold and silver standard. Then there were Easterners, net creditors (bankers, moneylenders), interested in a deflationary gold standard that would have had them being repaid in real terms.

Bryan was being disingenuous when he closed his speech by saying, "we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold." The truth is, no one was proposing to "crucify" or do anything unjust to borrowers.

Anyway, what if tomorrow, Bernanke said, "The Federal Reserve's public discussion of further quantitative easing caused a sudden rise in many key commodity prices and an uncomfortable speculative fervor. Also, long-term Treasury yields have started to rise, making it more difficult to sell the debt of our most important constituent. Economic data is still uncertain, but it is clear that whatever problems may exist will not be helped by further misallocation of capital. For that reason, we will wait until 2011 to consider any easing program, with a bias against implementing a program that would have such unpredictable effects and could cause serious destabilization."

Isn't it delicious that Bernanke is giving this speech on OpEx after a massive rally with the most lopsided bullish sentiment of all time? What if he is planning to jam the bulls this time?