Brookes news:

As expected a great deal of attention is still being paid to the financial sector and its "toxic assets". And then we have the Dow that now seems — at least to a great many market players — to be signalling a recovery despite the fact that unemployment is still rising and looks like reaching the 10 per cent level. Reinforcing the Pollyanna’s view of the economy is the emergence of a positive yield curve. In addition, figures from the Institute of Supply Management show that its Performance Manufacturing Index for March was up by 0.5 per cent while new orders were up by 8.1 per cent, production by 0.1 per cent and prices by 2 per cent and employment by 2 per cent.

What is missing from virtually all of the economic commentary is any recognition of the role of money in this economic drama. It is tacitly assumed that because consumption is about 70 per cent of GDP that monetary expansion will work its magic by first encouraging consumption which in turn will increase investment. Therefore it follows that consumption leads investment. It is important to grasp this thinking because it appears that Bernanke and Larry Summers subscribe to it, which would help explain their support for a reckless monetary policy.

(snip)

Assuming that the economy is following the usual path of recovery this cannot last. Not just because a great number of financial imbalances have not been liquidated but because it is entirely monetary driven. The Kennedy, Reagan and Bush tax cuts added real savings to the monetary mix which deepened recovery. Now this can only end with accelerating inflation, current account problems and a depreciating dollar. (Assuming, of course, that the rest of the world chooses not to follow Bernanke’s inflationary policy). To make it worse, Obama’s policy proposals from energy, green jobs, taxation and regulatory policies would present the economy with insurmountable barriers.

My comment: The whole article is worth reading as it lays out what is most likely to happen. We will probably get a nominal recovery in the economy and stockmarket but it will be accompanied by a dose of price inflation.

John Polomny
The Real Deal