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Thought for the day: Ben Bernanke probably isn't too happy right about now.

After rescuing the global banking system from the brink of collapse in 2008, after dealing with not one, not two, but three European debt crises over the past four years, and after surviving at least two rounds of political shenanigans in D.C., the Fed Chairman may have thought that his work was finally done.

Coming into mid-September, things were looking pretty good. There was talk that the Fed might actually be able to start tapering the stimulus it was providing to the economy via QE3. The housing market was clearly on the mend. The U.S. banking system was sound again. Jobs were being created. Corporate earnings were at or near all-time highs. Europe's economy was starting to improve. The stock market was at an all-time high. And the U.S. economy was finally moving forward at a decent clip.

In short, "Gentle Ben" Bernanke was able to breathe a sigh of relief and look forward to his retirement from the U.S. Federal Reserve.

And Then Everything Changed

But then the games in Washington began again. After an eight and one-half month hiatus, political brinkmanship returned - in a hurry. Back came the name-calling, the finger-pointing and the never ending claims about which party is #winning. Back came the nonsensical claims by each side that if only their opponents would come to their senses, everything would be just fine. Back came the fear that the self-absorbed, narrow minded professional politicians might actually do something irrevocably stupid in the name of political ideology. And before folks could figure out what ACA actually stood for, the government had a "Sorry We're Closed" sign on the door.

Just like that, there is talk of the U.S. Government defaulting on its debt, talk of another financial crisis that would rival the Lehman debacle, and talk of a return to recession. Yes, it is true that some of the talk may be aimed primarily at garnering headlines or riling up an opponent. And yes, nobody really expects the government to default on its debt. However, the bottom line is that when the news is filled with talk of the oncoming economic calamity and pictures of stocks going down every single day, confidence takes a hit.

When Confidence Dives...

The problem is that when confidence declines, so too does economic momentum. And given the most recent dive in some of the economic indicators, Ben Bernanke's worst nightmare may be about to come alive. Take a peek at the chart below of Gallup's Economic Confidence Index.

Note the three red arrows on the chart. These arrows represent (from left to right) the declines in economic confidence seen after Lehman fell in 2008, the 2011 budget/debt downgrade debacle, and now.

What is interesting is that according to ZeroHedge, the most recent decline represents the worst three-week dive in the Gallup Economic Confidence Index since Lehman. And yes, that means that the current drop is worse than that seen in 2011.

Stocks (and Bernanke) Might Be Worried About More Than...

The point on this fine Wednesday morning is that unless the children in Washington D.C. get their act together quickly, the economy may indeed be headed for another slowdown. And from Ben Bernanke's perspective, the economy needs another slowdown - especially one that is self-induced - like a hole in the head.

All that work. All those trillions of dollars of economic stimulus. And all the creative ways Bernanke & Co. dreamed up to avoid seeing the U.S. enter a deflationary spiral may be for naught if the country's elected officials in D.C. wind up doing the unthinkable.

The good news is that unless the budget crisis becomes protracted, the economic slowdown is likely to be brief. But the bad news is that based on the gains the stock market has enjoyed this year on the back of an improving economy, the current corrective phase could become more intense. And based on the concept of the wealth-effect, this too might become a problem for Bernanke's gang of central bankers.

Finally and for the record, what is happening now in D.C. is likely the primary reason that the FOMC decided not to begin tapering their QE program in September. Again, Ben Bernanke probably is none too happy with the way things are going right about now.

Turning to this morning... While the focus of the market continues to be on the games being played in Washington, the markets have responded slightly to the announcement that Janet Yellen has been tapped by President Obama to be the next Fed Chair. The White House will make the formal announcement this afternoon. In addition, we will get a look at the minutes from the previous FOMC meeting today. Traders will be particularly interested to see just how close the vote on tapering QE was last month. In the meantime, U.S. stock futures have given up half of their overnight gains on the ongoing worries about the potential for the U.S. to default on its debt and now point to only a modestly higher open.

Positions in stocks mentioned: none

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