“Fed cuts key rate by half a point, and markets soar,” is the top headline in today’s International Herald Tribune.

The second headline is like unto it:

“U.K. bank doubles bailouts”

Both headlines tell the same story...

“It’s Party Time...!”

At least that is the message that investors took away from the Fed’s actions yesterday. They ran up Dow stocks more than 300 points. “Euphoria sweeps Wall Street...” was how the IHT described it.

As anticipated in this space a long, long time ago, the Bank of Ben Bernanke has announced that it is not the Bank of Paul Volcker; it is still the Bank of Alan Greenspan. And, like its illustrious predecessor, this bank’s main concern is avoiding a Japan-like slump. That is, of the two forms of ‘flation’ we talked about yesterday, it prefers the form preceded by ‘in’ rather than ‘de.’

According to press reports, the Fed’s Open Market Committee had little doubt that it would cut rates; the big question before it was: how much? And while we guessed that it would cut, we presumed that it would take the more cautious choice – a quarter of a point, rather than a half. That it opted for a full half a point off the fed funds rate merely reinforced the message: “Drinks on the House”. Or at least that was the gist of it.

Meanwhile, across the blue Atlantic, the Bank of England had been reluctant to come to the aid of speculators. The bankers feared that offering bailouts to rich punters would give them the wrong idea. They might come away thinking that they could do any damned thing they wanted – like a rich man’s spoiled teenager – and the central bank would always bail them out. Heck, they could even buy U.S. subprime mortgage debt!

Northern Rock was the focus of their concerns over the weekend. The company has lent billions to Britain’s property speculators. But when Northern Rock itself needed a loan, all of a sudden the credit markets turned their backs. The mortgage lender then found itself short of cash. Then, to make matters worse, depositors turned their backs too. Middle-aged housewives and retired plumbers stood in line to get their money out, fearing that the firm might collapse.

“It is just like ‘29,” said an attractive French woman at last night’s dinner. “I don’t know anything about finance, but I don’t like the looks of it.”

Here at The Daily Reckoning , we don’t know anything about finance either. But we also don’t like the looks of it.

As of two days ago, private lenders were a bit on edge. There is a kind of ‘de’ flation on the loose, they noticed. It is taking down U.S. house prices...and, cometh the news last week...U.K. house prices, too. It was causing a general “re-pricing” of risk...and risky assets. Stocks were up...and down – as if investors couldn’t decide which direction the re-pricing should go. But a lot of debt-based assets – such as the infamous mortgaged-backed securities – are clearly being re-priced downward.

Among themselves, that is, as calibrated by the London Inter-Bank Lending Rate, the big banks figured they would lend each other money, overnight, at 6.47%. But along comes Ben and Mervyn, and the lending rates are dropped – to 6% overnight in London...to 4.75% in the United States.

We have to ask; what air do these central bankers breathe? What meat do they eat? What theories of economics do they believe...and what gods do they worship? How is it that they can believe, that of all the possible interest rates...from zero to the stars...they will find the very right one? How can they imagine that their judgment is better than the open market – in which they claim such confidence?

Oh, forget it...

But that doesn’t mean there are no open questions. “What next?” is the big one. Bailouts...bailouts...and more bailouts. “The crisis is behind us,” said one expert interviewed in the English press. But the pumps were working on the Titanic too. The engineers must have been proud of them.

How do you make a lot of money in this kind of finance-driven economy? Simple. You sell things to rich people. Those who make the most are the financial hustlers – who have figured out that rich people are no smarter than poor people. The poor sign up for teaser-rate ARMs...the rich sign up for 2 & 20 hedge funds.

Short of going into finance, there are other ways of separating the rich from their money. Among the most profitable is the luxury goods market. Swatch – owner of luxury watch brands Breguet and Blancpain – is up 38% this year. Lamborghini has a new limited-edition sports car that sells for $1.4 million, the most expensive car ever manufactured. All 20 of its first run sold out.

Today’s International Herald Tribune brings a two-page spread on the Monaco Yacht Show. “More billionaires, more Russians, bigger yachts and the same Mediterranean,” is how it sums up the situation. Articles feature private jets, watches...and of course, huge “mega-yachts.” An ad shows a beautiful young woman wearing a diamond pendant so large she has to peak around it.

But don’t get the idea that the rich, in their desire for very-conspicuous consumption, don’t care about the poor. There is an auction of watches later this week in Monaco, for the benefit of a local charity. The show’s director explains why:

“People living at the high end of society may seem detached and remote from the real world, but they are connected. They have visibility through their wealth and they are using it in socially responsible ways.”

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.