"nonconventional polices have costs and limitations that must be taken into account in judging whether and how aggressively they should be used."

That is the quote from Bernanke's speech this morning - Hence, the continued purchases of stocks will resume. The real scare here is that he is simply saying that because of unemployment and the risk of DEFLATION, more money is needed to be injected into the economy to spur growth.

What the heck does that mean? Let me go ahead and put it in layman terms, and put it in first person as though I were Bernanke.

"We have thrown in so much money into this economy, be it by giving money to the banks, by buying up treasury bonds, by buying up stocks - That we had expected the economy to pick up so much that inflation should have happened by now. Well, we have come to realize that we can't force banks to lend, and the low rates on treasuries isn't spurring demand for loans (which people couldn't get because of factor 1), and stocks are flying high - but it is only making the rich richer - not the public feel good enough to go out and buy stuff. So, uhm. We need to pump more money into the economy through continued different ways - If all else fails, we will at least kill the dollar in order to spark up our exports... "

Why does the fed want inflation so bad? Think about inflation as money you are making - If inflation is 10% a year, that means the price of all goods goes up by 10% a year. Bad, right? Well, let's say you have your home loan at 5%. If your home is increasing in value by 10% and your rate is 5%, that means your REAL RATE OF RETURN is actually 5% - You are making 5% a year on your home... Now, think about this in terms of government debt. If you are paying 2.51% on a 10 year treasury, and you have $1 Trillion of debt outstanding - and inflation is at 5% - That means, you are actually making 2.5% - Inflation can be a good thing - Especially if you have TRILLIONS of dollars of debt (i.e. The United States).

Let's flip it - DEFLATION - That 2.51% rate on your treasuries, coupled with 5% DEFLATION, the real rate is now 7.51% that you are paying. So, as you can see - The fed is trying HARD to avoid deflation. Moreover, deflation is a downward spiral (see Japan) - As once goods are cheaper next year, there is no urgency to buy now - Why not wait and see what happens? Sound familiar? Real Estate has experienced DEFLATION - And because of that, people are taking their time buying a house.

Overall, this economy is not going to get better. With Quantitative Easing 2 (QE2), we will only see the stock market fly higher, bonds go lower, and the overall economy continue it's downward slide. Moreover, once the patient (economy) is taken off life support (Fed Policy), the patient is likely to continue it's problems.