Fed chief and Wall Street white knight Ben Bernanke has spooked investors by uttering the dreaded ‘R’ word.

Although he denied that the US economy is in a recession, speaking before a congressional committee yesterday he admitted that a “recession is possible” in the US.

He also said that the US economy could shrink over the first half of this year.

“It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly,” he said.

Read on at Bloomberg.com.

What Bernanke didn’t mention to his congressional inquisitors is that financial markets would work better without the central planning interventions of the Fed.

“Only by appropriate economic reward to the cautious, when they are right and everyone else is wrong, will caution sit well beside risk-taking in the financial system,” says Paul Tustain, writing in the The Daily Reckoning Australia.

“The real threat to New York’s and London’s continued dominance of the world’s future financial system is government regulation itself [...] Top down rules remove society’s flexibility until one day we all wake up in a paralyzed ‘command’ economy, where nothing can be done without official sanction.”