Beware of the Obama Stimulus Trap

http://www.moneymorning.com/2009/07/31/obama-stimulus-trap/

"...Upbeat headlines have been everywhere in recent weeks, and they all seem to point to a single conclusion: The U.S. economy is in the early stages of a very rapid recovery..."

"...The reality is that these reports, when viewed in concert with other data, are actually a sign of a re-inflating financial bubble..."

"...not surprising that the U.S. economy has shown signs of strength in recent weeks; it has had huge amounts of money thrown at it..."

"...worsening unemployment situation strongly suggests that the true budget-deficit figures will be even worse than those already announced, a supposition strengthened by the postponement – from mid-July to mid-August – of the normal mid-term budget review..."

"...the budgetary shortfalls will push up long-term interest rates. That escalation in long-term rates, in turn, could choke off the economic recovery..."

"...other main problem with today’s economy is the likely resurgence of inflation..."

"...reason I wouldn’t be surprised by a reappearance of rapid inflation is the big increases in the money supply we’ve seen over the last year. According to St. Louis Fed data, the M2 money supply has increased by 8.8% in the last year..."

"...Federal Reserve has bought $300 billion of government bonds, always an inflationary warning signal since it monetizes the deficit. Furthermore, the Fed and the government together have engaged in rescue, stimulus and guarantee programs totaling an astounding $23.7 trillion, according to Neil Barofsky, inspector general for the government’s Troubled Assets Relief Program (TARP)..."

"...face reality: We’re going to be paying this bill for decades to come – almost certainly largely through resurgent inflation. In those circumstances, the recovery in the stock market is based not on reality, but simply on a bubble – an assertion that’s already been vindicated by the extraordinary afore-mentioned profitability of the Goldman Sachs and JPMorgan Chase trading operations, which typically benefit enormously when bubbles are inflating and there is too much money sloshing about..."