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We believe the current course of Fed policy is an attempt to Sustain the Unsustainable. The Q2 Flow of Funds report certainly confirms the enormity of ongoing Credit creation, intensive Risk Intermediation, and Financial Sector Ballooning – Classic Credit Bubble Dynamics. The bottom line is that only extreme levels of Credit expansion and intermediation now sustain bloated and maladjusted financial, economic and asset market structures. As we’ve witnessed, any interruption in the Credit creation process will almost immediately instigate financial dislocation. The Fed has chosen aggressive action in hopes of resuscitating Credit excess and Bubble Perpetuation. A less risky strategy for our system and currency would necessitate air flowing the other direction - out of Credit, asset and economic Bubbles. Postponing the adjustment process at this point ensures greater future financial tumult and economic hardship.

Doug Noland is a market strategist at Prudent Bear Funds. Their website is www.prudentbear.com.