I first heard about “Operation Twist”—the Fed's latest knob-twisting and deck-chair-on-the-Titanic-rearranging effort—from James Rickards back in August. Still, I never thought “the Bernanke” would actually call the initiative by this name, a Chubby Checker reference from when this kind of thing was last tried.

“Quantitative Easing 3” had apparently become a non-starter: “money-printing” (even though the Fed wasn't doing exactly that...) is now a Republican talking-point and political liability—and it has also clearly failed. Unlike QE, “Twist” doesn't involve an increase in purchases, but a selling off short-term debt and buying up long-term debt. The ostensible purpose is to lower long-term interest rates, which would allow middle-class voters to refinance their 30-year mortgages—and thus be happy and pacified for the 2012 election. (Perhaps the Bernanke even thinks he can re-inflate the housing market...)

One could, of course, look at this from another perspective, and see that the Bernanke is not so much leading interest rates as following them. The Fed is, in a sense, riding the 30-year tail wind of the bond market towards zero.

But I usually look at things from a different perspective altogether—namely, how the Central Bank will manage Washington's unfathomable debt mountain. Actually paying off some 100 trillion in Treasuries and entitlement liabilities—and I think these debts will be paid, at least nominally—entails massive inflation. As I discussed in depth a year ago, the Fed can get away with this by locking the world into long-term debt—the kind of debt that's difficult to get out of and which the Fed can more easily inflate into oblivion. In this way, the Bernanke is leading the charge into low-interest, long-term paper. Indeed, the Fed is set up as the biggest sucker.