President Bush we now know is “Damn Certain”.  Alan Greenspan, retired Fed Chairman now turned economic rabblerouser released his new memoir on Monday that could have been subtitled “Damn Certain too”.  Ben Bernanke, the current Fed chairman and according to the two previously mentioned gentleman is doing a fine job, possibly a heckuva one, will no doubt publish his account one day of what is happening to the economy with a subtitle, “Damn Certain As Well”.   These are, it seems, the only three people in America certain of anything and if that is the case, we are in more serious trouble than previously thought.

Much like the parallel universe often suggested in science and its fictional precursor, an apposite economy exists today and seemingly right under our noses.  The questionable existence of two economies lying in such close proximity yet unaware of how the other operates is one of the most troubling problems for this Fed. 

(I am writing this on the Tuesday morning prior to the Federal Reserve meeting where the safest economic gamblers have priced in a quarter point rate cut and a fifty basis point cut at the discount window and have already suggested that the remaining two meetings of the year will also see additional rate cuts by Bernanke.  These hopefuls, a group of market mavens who would like to see the Fed take it down even further, because four years is long time to wait.)

An apposite economy lives on both hope and fear.  Those who hope are not satisfied with the single digit growth of the Wilshire 5000, the total market index that is up, despite all of the news otherwise, 4.1% for the year. The Dow is up 7.5% for the same period.  This is a respectable gain and something that should be greeted with relief.

Those markets should be trading much lower.  As the financial arm of the market begins reporting their earnings, offering the world the first look at how some bets turns sour even when the in-house economist suggest otherwise, you can expect those year-to-date returns to tumble even further.

This is where the fear side of the apposite economy enters the foray.  Oil costs a lot.  Houses are getting more expensive – not in terms of asking price but in the cost of money to borrow.  The ripple effect of this downturn/correction/adjustment will force consumers to buy less.  This will force some – not all jobs to be cut.  This will lead to some unexpected inflation and some recessive economic reactions. 

These problems will not be fixed by a rate cut. It may seems as if the Fed is attempting to get in front of yet another adjustable rate mortgage rebalancing next year but you would be wrong to believe so. In fact, I’m not sure the Fed can fix this without some painful changes in consumer attitude.  It should be noted, in case you have forgotten, it takes over six months for any rate cut to make its way into the marketplace.  By then, it will be too late.

Mr. Greenspan has suggested that he had nothing to do with the current situation.  Stewarding the economy during the great expansion of the Clinton years was easy.  No one paid much attention to the Fed as surpluses were built, markets surged and we all felt wealthier.  When the political tables turned, Greenspan was hopeful. 

The lifelong Republican warned Mr. Bush about a government with no debt suggesting as he did, that such a thing is not a good idea. His inability to see into the future, he now writes, was not necessarily a shortcoming on his part but an offer to seize the opportunity of smaller government.  He was unable to stem the administration’s raid on the piggy bank, blessed by his silence by the bunch Kurt Vonnegut once called the “C students from Yale”.  That leaves Mr. Greenspan, despite his ruminations otherwise as much to blame as those who spent our way into this problem.

Mr. Bernanke or as his legacy might one day portray him, poor Ben, is left with a mess beyond a single agency’s ability to clean-up.  Wall Street isn’t happy.  Main Street isn’t happy. And no one seems to be able to find the right formula to feed these colicky economic infants. 

Let it be Mr. Bernanke – although by the time you read this, he will have already made some decision.  Let the economy shake itself out.  There are less than two million households in trouble – fewer than 5% of the total. The same percentage of businesses will feel the pinch but the sting will not be enough to take the whole of the market down. You can still borrow money.  You just have to prove you have the ability to pay it back.

I expect, that if Bernanke leaves things alone, that it will take a year to eighteen months for the wrongs to right themselves. If he doesn’t, and we all know he won’t, he will be writing in his memoir one day: “it wasn’t my fault, it was…”