Doc Hussman goes into a lot of hard to read monetary velocity stuff, but you might consider his thoughts on this fine Monday morning, ahead of next week's QE2 announcement. They are bubble blowing, and bubbles are not sustainable and certainly not helpful to the economy. At best, we are going to get rampant mis allocation of capital, or panicked strategic allocation of capital. At worst, total deflationary implosion. Or perhaps, something in between where frightened capital hordes not only cash, but things of value as well?
Bernanke Leaps Into a Liquidity Trap
"Quantitative easing promises to have little effect except to provoke commodity hoarding, a decline in bond yields to levels that reflect nothing but risk premiums for maturity risk, and an expansion in stock valuations to levels that have rarely been sustained for long (the current Shiller P/E of 22 for the S&P 500 has typically been followed by 5-10 year total returns below 5% annually). The Fed is not helping the economy - it is encouraging a bubble in risky assets, and an increasingly unstable one at that. The Fed has now placed itself in the position where small changes in its announced policy could have disastrous effects on a whole range of financial markets. This is not sound economic thinking but misguided tinkering with the stability of the economy"
