The stock market took off like a scalded dog right after [Bernanke’s] remarks. Apparently, investors believed that the negative effects a weak economy would have on corporate profits and dividends pale compared to the influence of the money received directly by sellers of securities to the Fed. They certainly can't expect any multiplier effect from the member banks' reserves created by the Fed in the process. Note (Chart 2) that QE1 and QE2 piled up those reserves, which now exceed reserve requirements by about $1.5 trillion. Banks refuse to lend to any but the most creditworthy, and they are loaded with cash and don't need to borrow much. Given the euphoria over stocks, they might also rally if the economy strengthens and eliminates the prospect for more quantitative easing. Can you have it both ways?
Read it at John Mauldin’s Outside the Box
U.S. Consumers: Still Key to the Outlook
By Gary Shilling
Shilling’s clearly thinks not and is still expecting a US recession to begin this year.
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