A couple of weeks ago, I asked you all to explain to me why the stock market is so excited, even as the dollar is weak, unemployment is high, and national debt soars.  Naturally, I got many interesting answers back, with inflation being cited as the chief culprit.  Robert Arvanitis, who already provided an information-packed response, hasn’t forgotten that post, and he sent me an interesting update:

To follow-up prior discussions, here’s an excellent exposition at WSJ on inflation. [Note from BW: This article might be behind a paywall. Both Robert and I have accounts, so we can't tell if it is.]

In short, the Fed is fabricating a trillion dollars a year. Direct inflation is already deadly, but for now is buried at the banks.

Even before we suffer the direct inflation, the monetary failure is already having bad effects.

· The markets no longer give us the right price signals, so vast capital is being misallocated.

· Borrowers, most notably Obama himself, are getting a destructive free ride from low rates. More accurately, I should say Obama is “borrowing 1,000 billion a year.” Too many people don’t realize it’s meaningless for Obama to say “We borrow just one trillion but have cut 10 billion….”

· Meanwhile, any thrift is punished harshly by those low rates. Here the elderly suffer most.

As Glenn Reynolds would say, “But watch the whole thing…”

Bookworm here, with my summary:  Big bubbles, big explosions. Or to shift metaphors, the smart ones should be looking to hop off this merry-go-round. It’s about to break down and there’s not going to be anything romantic about it: