With His Flawed ‘Exit Strategy,’ Bernanke Has Set the Stage for Stagflation

No good way out and I predict it will be Bernanke as scapegoat and Summers as new Fed Chairman. Then we'll be in even deeper doo-doo - MBC

http://www.moneymorning.com/2009/08/04/exit-strategy-stagflation/

"...As the U.S. and global economies stabilize, economists wonder how U.S. Federal Reserve Chairman Ben S. Bernanke will manage to reverse all the monetary stimulus that has been infused into the economy over the past year and prevent inflation.

My guess is that he won’t be able to do so, meaning investors need to position themselves now for the “stagflation” that’s almost certain to come..."

"...A deficit that equates to 13% of gross domestic product in 2009 and 10% of GDP in 2010 will be much too high to be financed easily. At the moment, the Fed is buying up to $300 billion of U.S. Treasury bonds to help the U.S. Treasury’s funding program. That’s directly inflationary, because it’s printing money to fund the deficit.

However, the large deficits and the threat of inflation are likely to cause a sharp upward move in Treasury bond yields. That will cause a crisis in the bond market, which Bernanke will try to solve by buying more Treasuries, thereby printing more money..."