A dangerous environment.

Krugman has been suggesting (demanding even) that the FED stimulate more and print more money to buy up Treasuries. Well, Bernanke obliged. The Nation's debt is now being moneytized to the point that almost all of the Treasuries are bought by the FED. The FED is also buying the mortgage bonds and talk once again abounds about a new housing bubble. In addition, the Stock Market is hitting new highs and some people expect the wealth effect to push the economy.

So, why the talk of a dangerous envitonment? First, the DJI and DTI confirm the breakout. Second, stocks and profits are soaring, not because the economy is soaring, but because excess liquidity is being pumped into the system while incomes are stagnant and banks aren't lending and that's why their profits are soaring. Krugman is getting his wish and the pumping is increasing. The money has nowhere to go but into the Stock Market. Sooner or later the money will start getting out of the anks and then inflation will rear its ugly head. Now the imbalance grows. The FED can't withdraw the stimulus without crushing the Stock Market and it can not continue to inflate without inflation. It's a no win - no win situation. But for now the Market parties like there is no tomorrow. Well, there isn't.