If you could ask Bernanke a question, what would it be?

Here’s mine:

What makes you believe the current recovery is sustainable? What happens if/when the Fed stops buying toxic MBS, the FHA no longer guarantees 25% of all U.S. mortgages, and Freddie/Fannie stop gobbling up the bound-to-fail mortgages?

bernanke-doh

With 25%+ of homeowners underwater, it’s fair to say that the housing market would crash as rates shot up. I’m pretty damn sure the Fed will not end their massive MBS buying-spree next Spring, as the original gameplan calls for.

So what’s the plan, Bernanke? Print, print, print. Delay the inevitable crash, and attempt to inflate our way out of it. Until our lenders really catch on.

Tarp II also seems inevitable, whether it’s 2010 or 2013. Much depends on whether the banks are actually required to value their assets at realistic levels. And whether they are forced to bring toxic off-balance-sheet assets into daylight. If/when they are forced to acknowledge the crap that exists outside their balance sheets (and the ones they used as Fed collateral), things could get ugly.

I’m following the FASB vs. Bank Lobby fight at CFO.com. It’s a crucial one to watch.

Nasty inflation is becoming more likely by the day. If gold continues to pull-back, we may get a great buying opp soon.