OTOH, Bernanke can effect the price of 2 things: Treasuries & agency debt. The Treasury bubble is well understood, but now many are starting to realize that the excess liquidity is what has been driving the equities markets for the last 2 months.
As for agency debt, imagine what home sales volume/prices would be if .gov wasn't subsidizing/backstopping around 99% of the purchases via both FNM/FRM & FHA. Volume would be -0- (what bank would originate a mortgage if they couldn't immediately sell it?) and price declines would be 50-80%.
That's why we are seeing the disconnect between deflation in the 'real' economy ie that which is subject to real economic production and the resultant global credit markets, and inflation in the 'government' economy ie that which is subject to fiat currency controls.
Right now, or at least for the last 2 months, the government economy has dominated a few sectors such as the rise in the stock market and commodities prices (anticipating currency devaluation). I believe this is transitory in nature, and the markets will soon correct to reflect the true nature of what is occurring in the global economy: deflation.
I agree with palmer that the G20 central bankers & governments are attempting inflation, but that they will fail. That's because any price spike in commodities (eg oil) and food (eg oil/gas->fertilizer) will have another immediate effect at reducing consumption.
I also agree with palmer that if they fail at inflation, the entire system will come down. Notwithstanding the sham 'stress tests' and recent run up in share prices to allow the banks to recapitalize, at some point the facade of false asset valuations behind the L3 CDS/CDO will finally have to be recognized.
Where I differ with Orlov is what happens after the collapse. The US was built by self-reliant people and a significant portion of the population still share those characteristics. Americans are armed and willing to defend their rights; they will be opposed by police & military who may or may not even be getting paid. I see them quickly coming over to the side of liberty.
After the dust settles, I view the next few years as a great opportunity to re-build the Republic.
Or IOW, the anticipation that inflationary boom may succeed has been driving up equities in true greater fool fashion.
That's because any price spike in commodities (eg oil) and food (eg oil/gas->fertilizer) will have another immediate effect at reducing consumption
The other effect it will have is helping to kill our chances at real recovery by strangling industry that needs those raw materials. A big part of today's recession is fallout from the commodity boom a year ago.
The US was built by self-reliant people and a significant portion of the population still share those characteristics.
I also share your optimism and always have. The creativity, innovation and entrepreneurialism don't go away just because the Fed is propping up insolvent banks with endless bailouts. Those won't go away with the reflationary bubble or the final collapse. OTOH, I have my money parked in speculative investments (e.g. buying tech in March and selling recently) and some inflation hedges (e.g. Canadian energy trusts). Those don't help the long term economic recovery. For that we need one simple thing: higher (i.e. market controlled) interest rates.