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The proliferation of agency and asset-backed securities, leveraged speculation, derivatives, CDOs and "structured finance" in general has acted as one momentous "financial accelerator." Developments in monetary policy have aided and abetted the rise of "Wall Street finance" and the empowerment of Credit Bubble dynamics. Monetary "management" has been reduced to telegraphed "baby-step" adjustments to the interest rate "peg." The Fed allowed itself to become hamstrung by Bubble Fragility and the inoperability of imposing actual system monetary tightening. And when it comes to a working framework for "financial accelerators" and Credit Channels, I suggest that Dr. Bernanke scrap his previous research and have his staff begin anew.

The bottom line is that the Fed is content to let Bubbles run their course, while being ready to implement aggressive "mopping up" strategies. But the potent inherent "financial accelerator" attributes of contemporary asset-based "speculative" finance beckon for a radically different policy approach For the Twenty-First Century.

Doug Noland is a market strategist at Prudent Bear Funds. Their website is www.prudentbear.com.