Have the Invisible Bond Market Vigilante's Given Up?

Bloomberg:  Bernanke Critics Can't Fight Bonds Showing No Inflation

"The bond market shows that, two years after the Fed’s second round of asset purchases sparked criticism from Republicans predicting a surge in prices, there’s no incipient anxiety of such risk. That confidence in Bernanke’s ability to keep inflation in check bolsters policy makers’ case for expanding their third round of so-called quantitative easing at the two-day meeting that began yesterday."

Once again monetary stimulus does not directly lead to higher prices.  Quoting myself  here

"The inflation hawks seem to consistently skip some important steps in the inflation process.  First high growth in the monetary base (currency + bank reserves ie what the Fed directly affects through open market operations) and reduction in the Fed Funds target rate does not necessarily lead to greater credit expansion.  It only does so if banks see creditworthy customers at the current interest rate - which may not be the case during a major recession.  These are the points made by Stiglitz Weiss and Bernanke Gertler Gilchrist.  Secondly credit only expands if there is demand for funds at any positive interest rate.  This is just Keynes liquidity trap.  Finally credit expansion does not directly lead to inflation.  Rather credit expansion leads to increased aggregate demand which in the absence of increased aggregate supply will lead to inflation.  But so long as there is significant slackness in the economy credit expansion first acts to sop up the excess capacity.  This is just basic supply and demand."