Bernanke has shown supreme confidence that he can suck $1 Trillion out of the banking system at will (the banking system usually has about $2 billion in excess reserves--the two differ by a factor of 500). To say that no one has ever faced such a task is akin to saying that I have never beaten up the Toronto Maple Leafs.
In taking the first move to return to normalcy, Bernanke cut the rate at which the Fed lends to banks. Markets dove. Bernanke said, " That is not it at all. That is not what I meant at all."
So the first glitch happened on Bernanke's first action. The surprise was delivered by rational expectations theory. That is, people watch what you do, figure out what you will do next, and make plans accordingly. People know Bernanke is going to start sucking money out of the system. They saw the first sign. They sold.
Bernanke said, "No, no, not yet!"
But people watch what you do.
|Bernanke has lingered in the chambers of the sea|
|By sea-girls wreathed with seaweed red and brown|
|But human voices woke him.|
Terra Del Fuego, here we come!
Apologies to T. S. Eliot