... a much more uncertain world is emerging. Global reflation and international markets are - as inflation and market dynamics tend to do - taking on a life of their own. And just as Credit Bubble dynamics overwhelmed Greenspan rate tinkering back in 2004/05, there are now strong countervailing market forces working against the efficacy of Bernanke helicopter money. If global reflation really takes hold simultaneous with a weakening dollar, inflation could easily emerge as a major threat here in the U.S. And if global markets begin determining longer-term U.S. Treasury and MBS yields - as opposed to the Bernanke Fed manipulating them artificially low - the U.S. recovery outlook becomes greatly more clouded.

During the 2005 "Conundrum," market dynamics fed the U.S. Bubble, as artificially low rates boosted household borrowings, asset prices and consumption. Increasingly, it appears the new "Conundrum" is putting upward pressure on market yields. Such a scenario holds the potential to stop the mortgage refinancing boom in its tracks, while delaying a meaningful recovery in housing markets and household consumption.

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