Bernanke has bet his bankroll on Goldilocks, but the Red Queen trumps the golden girl.

And the difference all stems from how you measure inflation. These details matter. Now, let’s go back to that highlighted portion from the BLS web site.

“Because the asset price method can lead to inappropriate results for goods that are purchased largely for investment reasons [emphasis mine], the CPI implemented the rental equivalence approach to measuring price change for owner-occupied housing.”

Simply put, monetary policy is far less effective in affecting real (or even nominal) economic activity than investors seem to believe. The main effect of a change in the monetary base is to change monetary velocity and short-term interest rates. Once short-term interest rates drop to zero, further expansions in base money simply induce a proportional collapse in velocity.

Housing bulls frequently point to looming inflation as a reason to own hard assets like houses. The Fed creating another $600 Billion out of thin air is just the type of thing that these housing inflationists excited.

However, that’s just not how quantitative easing works.

To ease or not to ease? That is the question we will take up this week. And if we do get another round of quantitative easing (QE2), will it make any difference? As I asked last week, what if they threw an inflation party and no one came? We will take as our launching pad today’s unemployment numbers, which serve to demonstrate just why the Fed may in fact be ready for some monetary shock and awe.