Economic central planning by the Federal Reserve has inverted that relationship. Now in financial panics, the Fed Funds rate perversely plunges.

Obviously, as today’s unprecedented spread of effective Fed Funds over the target indicates, the natural tendency is still for rates to soar when there’s a whiff of fear. When lending has suddenly become more risky, any intelligent lender will demand more inducement to do so. As a result, when panic strikes, banks withdraw from supplying funds at the controlled, unattractive rate, and the Fed steps in with massive injections to make up the funding gap so as to maintain the target rate.

The question is, why do they feel it necessary to fight nature this way? If a hurricane is expected to produce a ten-foot storm surge, should we build giant pumps to suck the water down, proclaiming that “even storms shall not change the sea level”?

Central planning simply does not work. Former Cleveland Fed Guvner Hoskins was on Bloomberg Radio today, inveighing against a rate cut tomorrow. He accused the Fed of trying to micromanage GDP, rather than keeping inflation in check. Yet he knows full well that the Fed has an impossible dual mandate of maintaining both growth and price stability.

Funny, the Fed’s fatally-compromised dual mandate resembles Fannie and Freddie’s structural ambiguity, as “Congressionally chartered” entities which were serving public purposes for private gain. Et tu, Ben Bernanke? With your junk-loaded balance sheet and your Canute-like determination to fight the tides of market-set rates, it appears that your forlorn institution may be the next bailout candidate. And current management may have to go. Good thing you’ve got a helicopter to escape from the roof when the peasants with pitchforks assault the Eccles Building.

As one of those peasants (though an articulate one), I’d like to see Dirty Ol’ Lizard Greenspan lynched from a yardarm, while thousands cheer from the forecourt. Justice! Justice, I cry! Lynch the Lizard!