Top Gun

Stock vs. Bond Performance

Yields should go up as Fed's balance sheet is cleared into public hands. This should keep inflation low as excess cash is sopped up.

Don't see any "real" drivers for stocks, like new important drugs, need for housing, computer or internet development, road expansion. Needs are met, so strong companies will thrive and those with weak finances will be bought by the strong.

Years of normalcy with good quality of life. Few get rich quick schemes, so wealth will have to be created the old fashioned way, by being earned. Sounds like a good ad slogan for an investment house!

Treasuries' True Risk

Here's our problem. Your guy buys his houses, his buying bids up the price of each house, so his $1M house goes to $1.2M. Now his neighbor takes out a new home equity loan, for real money, and spends it in the real economy increasing velocity. Hence the creation of credit is in fact inflationary(in the sense that real economy prices are bid up) until the asset bubble pops. The neighbor owes $200k for stuff he's already bought.

This entire problem is a legal Ponzi scheme. In our current state, we need regs that severely restrict banking leverage, but those regs can't be implemented until real money replaces the over leverage of the banks, coupled with write downs.

The more write downs we have, like the RBS $41B today, the closer we come to inflation.

The Fed's Bubble Trouble

The debt needs to be paid, as long as there is huge (non-treasury) debt, excess cash in the system will flow to return principal to creditors rather than to inflation. The Fed will re-inject the debt it acquired as this excess is absorbed. Very complicated, and I'm sure some bright Fed PhD has modeled the whole thing.

Increased gold prices are one way of increasing the money supply as cash is changed for gold. What we really need is for every billionaire to give 10% or so of their worth to needy people today, not as an institution. They could easy immediately put $10-20 billion back into circulation! No impact on our federal balance sheet.