Long Detailed Background Post from Larry Levin MSM pet pit trader

First paragraph vital for everyone, those who find too much information in the rest, spit it out.

People ask me all the time when this will end. The problem is that the healing cannot even begin, until home prices stop falling. At the moment, house prices are still going down, which must happen. House prices have to go down to the point where people can truly afford them, without all of the Mickey Mouse financing games/scams. And since incomes haven't gone up in the last eight years, we can presume that housing prices shouldn't have gone up either. How much more do houses have to fall before they are back to where they were 8 years ago? The data I have seen suggest an additional 20%, which means we're only about half way through the decline.

I am also asked if the massive amounts of money being pumped into the system will create inflation. The answer is yes, most likely. Currently the markets are suffering incredible asset deflation and if the Fed can withdraw this extra liquidity, it may be able to avert run-away inflation.

The concern today is that the Fed has nearly doubled the size of its balance sheet in the past few weeks. The Oct. 3 issue of Grant's Interest Rate Observer describes:

After a flat-footed start, [the Fed] had shown its ability to degrade its balance sheet by selling off its Treasuries and acquiring dubious mortgages. But it had not really put its back into dollar debasement. The sum total of its earning assets, i.e., Reserve Bank credit, was rising at year-over-year rates of just 3% to 4%. Where was the push to print up enough dollar bills to smother the debt crisis of 2007-8 - assuming the problem was susceptible to smothering through money printing?

Mystery solved: Reserve Bank credit is suddenly flying. It surged by $203.6 billion, to $1.135 trillion, in the banking week ended Sept. 24. And if Merrill Lynch's guess is on the mark, it has soared to $1.730 trillion in only the past few days, a near doubling since May 2007, when the latent crisis became manifest.

As Helicopter-Ben Bernanke said in November 2002 - The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. Of course he went on to say that the Fed could easily avoid a Japanese style deflationary spiral by throwing those freshly minted dollars from a helicopter.

The data above show that the U.S. dollar is getting debased on an unprecedented scale. The printing presses are running overtime and do not come without a price - eventual inflation.

Have you ever picked up a sea shell and put it to your ear to "hear the ocean?" Today you can put a dollar bill to your ear - and hear the Treasury running out of ink!