What if the medicine administered by the US Federal Reserve, the US Treasury and their global counterparts does the trick?

The market's reading of the raft of programmes unveiled during the last couple of weeks has, for the most part, been an expectation of high inflation but there are good reasons to suspect this may not be their result.

US authorities have ratcheted the printing presses up several gears in a series of measures now collectively described as "quantitative easing." The US Federal Reserve said last week it would print well over $US1.3 trillion buying up to $US300 billion of US treasuries and lending up to $US1 trillion to banks taking AAA-rated securities as collateral. These securities could be backed by assets such as student loans, credit card loans - in fact just about everything you care to think of.

Meanwhile, the US Treasury plans to buy as much as $US1 trillion in troubled mortgages and related assets from financial institutions. This plan is supposedly designed to address the biggest hurdle to an economic recovery - the trillions of troubled loans on bank balance sheets.

The secondary market for mortgage-backed securities has closed down because the banks were unwilling to crystallise their massive losses. And this meant the banks were starved of capital to make new loans.

The Federal Reserve says its plans are to increase credit issuance at "more normal interest rate spreads." Specifically it wants a sharp reduction in the premium to borrow over the risk free-rate (government borrowing).

The problem it wishes to address is abundantly evident in the so-called TED spread - the difference between the yield on US treasuries and the rate at which banks in London lend US dollars to each other.

The spread is now 100 basis points - still at the level it has been throughout the subprime crisis - when historically it has been around half this figure.

Put another way, the US authorities want to flood the banks with cash, effectively forcing them to start lending.

The moves have given the market a big shot of confidence. An element of the rally was an expectation that the plan might actually work.

A second - and perhaps more prevalent - theme was that the programmes would result in the debasement of the US currency and inflation.

Witness the standout performers of the rally - the resources sector and capital intensive, asset-rich industries such as infrastructure.

The losers were the defensives such as healthcare and those that would suffer from a weaker US dollar - look at the 5% fall in Fisher & Paykel Healthcare for instance, which generates 60% of its sales in the US.

The inflation argument is economics 101. More money in the system, all other things being equal, results in a rise in nominal prices, static real prices and, among other things, a sharp reduction in the real value of debt.

However, at risk of stating the obvious, the world economy is most likely in a state not often addressed in economics 101. Indeed, there is a strong argument that printing money might be the best response to the real threat of inflation's ugly sibling, deflation. Just last week the IMF warned there was an elevated risk that deflation could take a grip in Japan and the US.

If the Federal Reserve's aim is purely the restoration of credit markets, it is quite possible that having achieved this goal it may start to withdraw the quantitative easing, returning the monetary policy settings to a more neutral position. This would mean interest rate hikes and a rationing of central bank credit - moves that would weigh on an economic recovery.

Certainly inflation is a threat. If the quantitative easing works too well and the cash pumped into the system was extended to households and businesses it could, if unchecked, revive all of the forces that got the economy into its current state.

For that reason this threat should be imputed into current share prices.

But if the US Federal Reserve and government are to be taken at face value (and that is a big if), it and the US government are putting in place the conditions necessary for a recovery, while recognising those elements sufficient for a recovery are for the most part outside their control.

These conditions - the restoration of private and public balance sheets in the US and further afield are likely to take much longer and be associated with the sort of regulation that will prevent the excesses we have seen over the last few years ever being repeated again.

So what does a recovery look like? It is a low, slow grind where individuals and businesses save and reduce debt to more manageable levels.

It is a world where personal consumption stays sluggish for a considerable period of time and where corporate earnings growth, for the most part, is a plodding progression rather than the huge surges we have seen over the last few years.

It is also a world where the US Federal Reserve remains vigilant against inflation and plays a perfect hand keeping it under control.

And all of this means a plodding and gradual recovery of the economy and the share market- not the huge rallies we have just seen.