That's gasoline in that hose, not water

This morning's Ahead of the Tape column($) in the Wall Street Journal trots out the same old tired axiom about recent Federal Reserve policy as it relates to financial instability and rising prices, particularly rising oil prices - the old "fireman" metaphor.

Like many others, the "fireman as arsonist" model always seemed to make more sense to me.

Follow the logic, if you will...

With the prospect of a world-wide meltdown in banking and credit during an era of rising prices that show up everywhere but in the government's inflation statistics, faced with the choice of saving the global financial system by creating even more money and credit OR reducing the amount of money and credit pumping through its veins in order to contain rising prices, the Bernanke Fed is said to have chosen the lesser of two evils by selecting the former.

In fact, since the credit crisis began almost one year ago, the idea of central banks "tolerating more inflation", erring on the side of more money and credit creation to ensure stability, has become almost conventional wisdom.

And so it was again this morning:

In a sense, the Fed's decisions of the past few months were easy ones. Inflation worries never went away, but when the house is on fire, nobody complains to the firemen about water damage.

As seen in the Fed Funds vs. Crude Oil graphic above, clearly that hasn't been water coming out of Ben Bernanke's fireman's hose.