The Fed has said repeatedly, and likely will again today, that it will do "whatever is necessary" to prevent a Second Great Depresssion, so presumably they are willing to keep flooding the markets with fiat money as long as it takes for the economic recovery to be firmly in place, as determined by whatever measures they deem important. So far, it has been successful, if you believe the reports of record bullishness among investors, and the purported crash has been a figment of Pokersam's imagination, at least up until now. The problem is that the Fed's balance sheet has grown from ~ $900B to over $2T in less than a year, with a good portion of that in U.S. treasuries (i.e. it has created "funny money" with which to buy up treasuries from the primary dealers to fund the massive deficit spending by the out-of-control socialists). In other words, one arm of the Government has give the other arm of the Government a loan, with money that it just "made up" (also called "monetizing the debt"). If that money were ever paid back, it would just disappear off the balance sheet as magically as it was created, but that presumes that at some point the socialists will stop spending us into oblivion. Re: the Fed "printing" money, that will ulitmately lead, as it has in many failed economies, to massive inflation (*not* deflation), and the signs are already beginning. In a recession, suppliers of goods and services have no pricing power since the are mainly focused on maintaining market share and staying in business, but when economic expansion starts with too many dollars in circulation, the lid will blow off prices like a pressure cooker. Of course, many are saying that is a part of the plan, since realistically, we will never be able to pay off the burgeoning $12T national debt, so the only alternative is to inflate our way out of it. The inverse dollar trade has worked pretty well these last few months, and if you are not into commodities, which are also soaring, stocks are the only investment that has a chance to keep up with hyperinflation. However, Meredith Whitney has opined that the Fed may be running out of bullets, and if the upcoming auctions go as badly as the last one, they may have to turn off the money spigot earlier than they planned. When you can't entice more stupid foreigners to give you a loan at ridiculously low rates of return, which will then be repaid in the future with inflated dollars, the gig will be up, and the Fed will be forced to grow a spine, say no to more monetizing, and the treasury will have to offer better terms (i.e. higher rates) to its creditors. Higher rates/tighter money, even though it is the correct course of action, would send the market into a tizzy, at least for a while.
