Ben Bernanke deserves credit for rescuing us from the edge of abyss. The question is, what does he do now?

I have to take issue with our European site’s editor, Paul Amery, and his most recent blog, Did Bernanke Save The World?. Paul, you’ve either forgotten how bad things were last year, or yearn for some sort of ideological purity that would sacrifice tens of millions of jobs to make a point about corporate responsibility.

Take the central point of your blog. You call Bernanke to task for saying that there was “little to suggest that market participants saw the financial situation as about to take a sharp turn for the worse [in August 2008].”

To prove him wrong, you show a nice chart of the CDR Counterparty Risk Index―a measure of the risk of default for 14 major financial institutions. Sure enough, this live measure of risk rose from about 15 to 140 from January 2007 through August 2008.

But you stop the chart too early. Because from August 2008 through October 2008, the index rose from 140 to over 400.

Here’s your chart:

And here’s mine:

Same index, just extended for an extra two months.

Credit risk may have been elevated in August 2008, but no one anticipated what happened next. Credit risk got on a rocket ship to the moon.

And when that happened, the Fed was the only institution that took decisive action. While the Treasury and Congress were bumbling their way through billions of dollars, the Fed was restarting the commercial paper markets, backstopping the banks and getting the economy on its feet again.

It wasn’t perfect, but it did a pretty darn good job under the circumstances.

The downside of moral hazard is overblown. Talk about moral hazard with people who had 90% of their wealth tied up in Lehman, Bear, Wachovia, Merrill Lynch. The alternative of not acting would have been much, much worse.

The real question is: What happens now? Can the Fed withdraw money from the economy in a way that doesn’t stifle the recovery but which doesn’t spark inflation?

That’s where I think it faces an almost impossible task. All signs suggest that Bernanke will err on the side of maintaining an easy-money position, to ensure that we don’t enter a W-shaped recession. That means we face the risk of inflation down the road, and possibly, of another asset price bubble in the interim.

But compared with what we were up against last fall, I’ll take it.