Image: US currency © Steve Allen, Brand X, Corbis

Related topics: economy, Bank of America, ETF, Ben Bernanke, Anthony Mirhaydari

Businesses are flush with cash. Financial conditions are calm, with interbank lending rates hitting fresh lows. Inventories are lean. Workforces are stretched. When demand returns after the temporary drag from high oil prices and Japan fade, businesses will ramp up production, investment and hiring.

In short, the ingredients for a re-recovery are in place, as detailed in my June 8 column, "The economy is recovering -- really."

Yet the market chorus is calling for more monetary help from the Federal Reserve -- and was bitterly disappointed last week when it appeared that such help isn't coming. By all indications, Fed Chairman Ben Bernanke isn't interested in a QE3 -- a third round of printing money to buy long-term bonds. The first was initiated in late 2008. The second started last November.

The combination of an economic growth scare and the feeling that the Fed is asleep at the switch has investors on the run. People want a repeat of the rally that ran from September to April, fueled by QE2. They want the caress of more easy money. Like a drug addict looking for the next hit, they fear losing the daily injections of cash into the financial system.

They won't get it -- at least, not in the form they expect. QE3 won't happen because the threat of inflation is too strong.

But that's no reason to be afraid. The economy's slowdown appears to be temporary, and banks are sitting on piles of cash. Just as critically, there's an ample supply of what I've dubbed "stealth stimulus" on the way, thanks to the Fed. That makes this a time to act while others are fearful (at the end of this column, I discuss a couple of plays for investors looking to act).

Image: Anthony Mirhaydari

Anthony Mirhaydari

Stealth stimulus aplenty

Not only does the market overestimate the Fed's willingness to consider QE3, it also underestimates the pace of interest-rate hikes over the next few years. Société Générale economist Aneta Markowska expects short-term interest rates of about 1.25% around Christmas 2012. Wall Street is looking for rates under 0.75%. The evidence of a continuing recovery and rising inflation suggests higher rates are justified.

But that doesn't mean the Fed is done. In fact, by some measures it's ramping up its support of the economy to new and potentially dangerous levels as its stealth stimulus -- the combination of higher inflation and ultralow short-term interest rates -- is unleashed. The result is negative "real," or inflation-adjusted, interest rates -- something that hasn't been seen in a big way since the Great Inflation of the 1970s.

Image: Real interest rates © MSN Money

The Fed isn't talking about it, but that doesn't mean it's not there. Negative real interest rates, tantamount to free money to borrowers, are rare, because interest costs are subsidized by inflation. If you've been waiting to buy a car, boat or house, or to invest in a new business or expand an existing one, now is the time. After years of financial retrenchment, households are in a position to start borrowing again -- just as banks ease credit requirements and start lending again.

The cost of servicing debt has fallen to early 1990s levels, thanks to low interest rates. Loan delinquencies are falling. And the savings rate has fallen back under 5% as people regain confidence to spend.

With the borrowing cycle revving up, what was once a check on the economy's growth rate is about to turn into a big catalyst.

Image: Yield Curve © MSN Money

Another benefit, especially for the beleaguered banks, comes from the extremely steep yield curve. In plain English, this is the massive gap between short-term and long-term interest rates. Short-term rates are being held down by the Fed's zero-interest-rate policy, which has been in place since 2008. Long-term rates -- which dropped only about 0.5% thanks to QE2 and have since moved higher, with 10-year Treasury yields moving back over 3% -- are well above last summer's lows, as bond traders price in more inflation and economic growth.