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It was a week where Mr. Trichet warned that inflationary pressures may force the ECB to raise rates again. Central banks around the world are feeling increasing pressure to tighten. Here at home, chairman Bernanke voiced the Fed’s concern with the inflation backdrop, while making notable comments to support of the dollar. The markets took Mr. Trichet’s comments seriously and, not surprisingly, essentially disregarded Mr. Bernanke. The Fed has left itself no leeway - and little credibility.

Bernanke also suggested that sustainable U.S. economic growth would be the most important factor supporting the dollar. I’ll continue to argue passionately that the current trajectory of U.S. Credit expansion and today’s unsound Economic Structure are highly inflationary and a dollar disaster. Importantly, today’s dollar outflows hit a world already inundated with excess dollar balances – not to mention domestic Credit excesses that become extreme almost across the globe. It is also my view that current Monetary Processes and the trajectory of U.S. and global imbalances ensure ongoing ballooning of the massive Global Pool of Speculative Finance. Indeed, this "Pool" is at the epicenter of today’s most intense inflationary and speculative biases – biases that are being thrust to blow-off extremes by the latest round of aggressive (and misguided) Fed reflation (think NASDAQ 1999 and U.S. mortgages 2006).

There were developments this week that seemed to indicate an important inflection point may have been reached. Energy price instability took a decided turn for the worst; global inflationary concerns ratcheted higher; dollar vulnerability reemerged; financial stocks were crushed; and, importantly, the U.S. Credit system demonstrated its greatest instability in a couple of months. And while the U.S. Bubble Economy has proved relatively resilient thus far, sinking stock prices and a further tightening of Financial Conditions would at this point prove too much to bear. I’ll also venture a presumption that all the excitement – along with the unwind of hedges – instigated by the Fed’s March bailouts could now prove a source of added instability. Clearly, rampant speculation has taken hold and should be expected to remain well-embedded until the bust.

To be sure, there are huge costs associated with endeavors to sustain a Bubble Economy. Some are now readily apparent.

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