Bonner has Ben making the following amusing but accurate observations:

Ben: “Gosh Bill, I’m in a bit of a jamb. I’ve got rising consumer prices on the one side...and a falling housing market on the other. I should raise rates to head off inflation, on the one hand, but if I do that, I risk sending the economy into a recession. Then, I’ll get blamed for everything. The Republicans will lose the White House – and blame me, of course. The economy will sink – just like Japan in the ’90s – and I’ll get blamed for that too. It isn’t fair...”

Ben: “Wait...it’s actually worse that I made it sound. Because either way I go, I’m screwed. If I cut rates, the dollar will go down and the “crude oil cowboys” are going to push the price up to $200 – and the whole world economy could go into some kind of crisis. If I raise rates, on the other hand, I’m almost certainly dooming all those marginal homeowners to bankruptcy. They all live on credit. And if the cost of credit goes up...they’re going to be squeezed hard.

LeRoy: Exactly right. Bernanke must choose whether he wants a recession or an accelerating inflation. Interestingly, the new issue of The Economist seems to agree that this is pretty much the choice. [I left it at home, or would quote from it.] I know what choice I would make. Joseph Schumpeter: "A recession is a good cold douche for the economy." And inflation is the cruelest tax of all. Now, I may be a bit biased, because I know my job is very secure. If I were at a bigger risk of being 'downsized', or 'outsourced', or just plain 'fired', would my position differ? Maybe.

But I think Mr. Bernanke should be raising interest rates. He should be raising them now.