Johnson & Johnson Recalls Sudafed Because of a Typo

Johnson & Johnson's (JNJ) recall woes aren't over yet. The company's McNeil Consumer Healthcare unit said Thursday it is recalling nine lots of Sudafed because of a typographical error in the directions. Yes, a typo.

The recall affects 667,632 packages, according to Bloomberg, which first reported the recall. McNeil is recalling, at the wholesale level in the U.S., the over-the-counter allergy and cold medicine Sudafed 24 Hour Extended-Release Tablets (10-count packs, 240 mg each) because the instructions repeat the word "not" as follows: "do not not divide, crush, chew, or dissolve the tablet."

The internal packaging contains the proper instructions: "swallow each tablet whole; do not divide, crush, chew, or dissolve the tablet." The company further says in its statement: "To date there have been no reports of adverse events caused by this labeling error."

In a previous Sudafed recall in January, which was part of a larger one, the company said it had found insufficient equipment cleaning procedures on the production line. "McNeil identified the inadequacies as part of a thorough, proactive quality and process assessment of all McNeil produced products," the company said in a statement.

A String of Recalls That Started in 2009

The largest consumer health care company's recall woes began in 2009. In April 2010, J&J initiated a huge recall of over-the-counter children's medicines, such as Tylenol and Motrin, because of manufacturing deficiencies that affected the quality, purity and potency of the products. These recalls were the subject of two Senate investigations, and the Oversight Committee hearings revealed cover-ups and phantom recalls.

In response, J&J suspended manufacturing at its Fort Washington, Penn., plant, made changes at a plant in Puerto Rico, and has been conducting a complete review of its products, leading in some cases to further recalls. It was expected that as the product reviews proceeded, there might be additional recalls.

And J&J has had to pull other products along the way, as well, including its 1 Day Acuvue TruEye contact lenses in Japan, its cancer drug Velcade and a hip implant. Also, children's Benadryl and heartburn drug Mylanta were recalled. WSJ Health Blog lists all the recalls it has kept track of, including three just this past month. While some of the recalls were generally harmless, others, such as for the hip replacement, were far from it.

On top of the investigations by regulatory bodies and lawmakers, loss of confidence by consumers and investors alike, J&J also said the recalls cost $900 million in sales last year. The company that was once a symbol of quality -- in product, business and management -- is becoming a caricature of itself.

View all Articles » Stock Market Writer and AnalystMelly Alazraki is a ten-year veteran of the financial world, working internationally for both sell and buy side firms. She's been a contributing editor with BloggingStocks for nearly four years and writes about the stock market and pharmaceutical industry for DailyFinance.

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Justice Denied: Why Countrywide Chief Fraudster Mozilo Isn't Going to Prison

Angelo Mozilo, the former head of Countrywide Financial, isn't going to jail. In fact, he won't even face a trial in which there's a chance of going to jail -- nor will he experience the stress of being charged.

Countrywide's vast numbers of fraudulent mortgages -- which were created to feed a securitization machine, not to secure repayment of properly underwritten loans -- may still doom Bank of America (BAC), which purchased Countrywide in 2008. Countrywide was such a bad actor it was sued by 11 attorneys general, leading to an $8.7 billion predatory lending settlement.

Sufficient evidence of Mozilo's knowledge of -- indeed, his direction of -- Countrywide's bad deeds existed for him to accept a record $67 million settlement with the Securities and Exchange Commission. As large as that was, from the point of view of anyone looking for justice, the deal was entirely unsatisfactory. First, because Bank of America picked up most of the tab. Second, because even if Mozilo had paid the full amount, it would only have been about half of the $132 million he took home in 2007.

The New York Times reported this weekend on a Countrywide whistle-blower -- Michael Winston -- who wouldn't play ball with the company's practices, and was fired as a thank you. A jury awarded him $4 million as compensation for the firing. Surely Winston could have been a witness for the prosecution. But the prosecutors have dropped the case.

Mark Malone, a former federal and state prosecutor who spent eight years prosecuting the mob, white collar criminals and political corruption, said:

"Mozilo was the boss of bosses of predatory lending. He was the inspiration for MERS, the electronic database used to facilitate much of the fraud surrounding predatory lending, mortgage securitization and fraudulent foreclosure practices. If prosecutors are not going to go after low-hanging fruit like Mozilo, the rest of the bankster bosses can sleep well, assured that their fortunes are secure.

Why No Bankers Have Been Charged

Mozillo is just one of a line of financial crisis titans -- in my opinion, crooks -- who are not being criminally charged. And in the little civil justice pursued so far, not only have judges questioned the lightness of the settlements, but the SEC's top cop, Robert Khuzami, is being investigated for overruling prosecution-minded SEC staff and cutting a sweetheart deal for a couple of Citibank (C) executives.

So what is going on? After all, we're a nation that takes fighting crime so seriously we use SWAT teams and submachine guns to pursue marijuana possessors and dealers. And we go after some white-collar crime aggressively, such as targeting insider trading with wiretaps and informants. We even convicted some of the Enron guys, and jailed a big law partner for facilitating the Refco fraud.

But not a single architect of the financial crisis that brought America to its knees has yet been charged. And of all the crimes against "the People," the financial crisis ranks as one of the all-time worst.

As Yves Smith at business blog Naked Capitalism touched on, one reason prosecutors aren't acting has to do with the laws and attitudes of the enforcers. Another reason, detailed by Matt Taibbi in Rolling Stone, is the revolving door between the U.S. Attorney's office in the Southern District of New York and the SEC on the prosecution side, and the big firms that defend the crooks. (The SDNY has Wall Street in its jurisdiction. Although the SEC can't bring criminal charges, it investigates and sends cases to the SDNY.) To that list, it's important to add the revolving door between big corporate law firms and the Justice Department in Washington.

When the Cops And Crooks Are Pals

Smith notes in part that the U.S. Attorney's office in New York has set a ludicrously high bar for itself: If conviction isn't 100% certain, don't even bother filing the charges. One result of the must-be-able-to-guaranty-victory standard, Smith says, is that the prosecutors are inexperienced and don't do a good job when they do prosecute, like in the Bear Stearns traders case. Another result is that the criminal statutes have no deterrent effect on white collar crime. Deterrence is based on the certainty of getting caught and prosecuted, not on whether the prosecution will be successful or how severe any punishment would be.

In a follow up, Smith highlights both the lack of resources given to the SEC -- surely a factor -- and the resume-building incentives of SEC staff to go for a bunch of quick settlements rather than a big, time- and resource-consuming jury trial.

Taibbi's piece, if your blood pressure can take it, is worth reading in full. I'll impart only one example of the anti-justice relationship between the SDNY prosecutors and their erstwhile targets, and that's the tale of Gary Aguirre, an SEC staffer wrongfully fired shortly after he tried to investigate an insider trading case.

In the summer of 2005, Aguirre had enough evidence that then-Morgan Stanley (MS) CEO John Mack had supplied inside information to a trader to want to interview Mack. But Aguirre' boss tried to discourage him, citing Mack's political connections. Within a few days, Mack's power was on full display. First, Morgan Stanley had a former top staffer of the "Sheriff of Wall Street" Eliot Spitzer try to dissuade Aguirre. Then the SEC's director of enforcement told Mary Jo White, a Morgan Stanley attorney who was once the U.S. Attorney for the SDNY, that the evidence didn't amount to much, reassuring White.

As Taibbi explained:

Aguirre, an SEC foot soldier, is trying to interview a major Wall Street executive -- not handcuff the guy or impound his yacht, mind you, just talk to him. [But] his target's firm is being represented not only by Eliot Spitzer's former top aide, but by the former U.S. attorney overseeing Wall Street, who is going four levels over his head to speak directly to the chief of the SEC's enforcement division ... Mack himself, meanwhile, was being represented by Gary Lynch, a former SEC director of enforcement.

... A month after [Aguirre] complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued. ... [Aguirre] had just received a stellar performance review from his bosses. The SEC eventually paid Aguirre a settlement of $755,000 for wrongful dismissal."

Observe the switch for White, Lynch and the Spitzer aide, as they jump from policing Wall Street to apparently nipping a worthy insider trading investigation in the bud, and prompting the firing of the person who dared initiate it. Taibbi has more examples in his piece, including, as Smith discusses, Khuzami making inappropriately defense-friendly comments at a high-priced schmooze-fest between Wall Street enforcers and the white collar defense bar.

As Taibbi notes, "over the past decade, more than a dozen high-ranking SEC officials have gone on to lucrative jobs at Wall Street banks or white-shoe law firms, where partnerships are worth millions."

Attorney General Eric Holder and his top staff have spun through that revolving door too.

The Front Door at Justice Leads into Covington & Burling

Prior to becoming attorney general, Holder was a litigation partner at Covington & Burling in its D.C. office for eight years. In particular, his practice involved "high stakes civil litigation and white collar criminal defense." In 2008, Holder was one of six Covington attorneys ranked top in the country in white collar criminal defense. Another awardee -- and co-chair of the white collar criminal defense department at Covington -- was Lanny Breuer, now the assistant attorney general in charge of the criminal division. The Best in America White Collar Criminal Defense award was one both attorneys had received multiple times. The firm as a whole was "recognized by Chambers USA (2010) as one of the nation's leading firms in the field of Financial Services Enforcement and Investigations."

But the Justice-Covington connection reaches past Holder and Breuer. It includes Holder's recent deputy chief of staff, James Garland, who just rejoined Covington, where he defends white collar criminals. Until rejoining Covington, Garland

"advised Attorney General Eric Holder on a range of enforcement issues, with an emphasis on criminal...matters, and helped to spearhead the Department's response to the ongoing economic crisis. He was deeply involved in the creation of President Obama's Financial Fraud Enforcement Task Force... He worked closely with senior officials at the White House, Main Justice, the U.S. Attorneys' Offices, and other federal, state, and local enforcement agencies." [Bold added]

Remember, folks: "President Obama established the Financial Fraud Enforcement Task Force (FFETF) in November 2009 to hold accountable those who helped bring about the last financial crisis, and to prevent another crisis from happening."

Nor is Garland the only Covington connection to that task force. Partner Steve Fagell was

"a member of the Criminal Division's senior leadership team, [and] a key advisor to Assistant Attorney General Lanny A. Breuer ...[Fagell] was integrally involved, for example, in the formulation and communication of Division policy in connection with...corporate and securities fraud, and other forms of financial fraud. ...Mr. Fagell also coordinated the Division's work with the Financial Fraud Enforcement Task Force and the Financial Crisis Inquiry Commission, and he routinely represented the Division in meetings with the SEC, the FBI, and other key regulators and law enforcement agencies." [Bold added]

Another notable player who recently rejoined Covington is John Dugan, the recent head of the Office of the Comptroller of the Currency. The OCC regulates the big banks. As Covington explains:

"During his five-year term, he led the Office of the Comptroller of the Currency (OCC) through the financial crisis and ensuing recession that resulted in extraordinary regulatory and supervisory actions for national banks of all sizes, including government assistance provided under the Troubled Asset Relief Program (TARP)..."

Partner David Kornblau was the Chief Litigation Counsel for the SEC's Enforcement Division from 2000-05, and then went to Merrill Lynch for four years. At Merrill, Kornblau:

"oversaw the firm's responses to regulatory and law enforcement investigations by the SEC, DOJ, FINRA, New York Attorney General's Office, and other federal, state and foreign regulators. These matters concerned all of the firm's business areas, including subprime mortgage securities..."

Kornblau went from Merrill to Covington. One of his representative matters is "Defend[ing] Merrill Lynch in investigations concerning disclosure and valuation of the company's inventory of subprime mortgage securities."

The Credibility of the Revolving Door

And the list goes on. Indeed, Covington itself notes that:

Our white collar practice includes 30 partners, most of whom are former prosecutors and SEC enforcement attorneys who have held senior positions in United States Attorney's Offices, the U.S. Department of Justice, the White House, the Securities and Exchange Commission, and other government agencies involved in white collar criminal and regulatory enforcement.

Covington claims that its experience has paid dividends: it has " a deep and invaluable reservoir of credibility with courts, prosecutors and regulatory agencies nationwide."

In addition Covington boasts of a deep, decades-long relationship with the financial services industry. That relationship is encapsulated by another recent Covington hire: Edward Yingling, the just retired president and CEO of the American Bankers Association. Covington points out that "The breadth of Ed's experience will be a tremendous asset to our clients" in all types of enforcement actions.

Covington has represented the financial industry in ways relevant to the prosecution of the mortgage fraud and related securities fraud at the center of the meltdown. Check out Covington's "Financial Institutions Investigations" subdivision of its white collar criminal defense division, and its broader "Financial Services" practice descriptions.

Specific matters include representing (taken from various Web pages at Covington except the last):

Freddie Mac in enforcement inquiries initiated by its federal financial regulator (OFHEO) and SEC ...

Two former national bank officers in formal investigations before OCC regarding loan underwriting ...

The former CEO of IndyMac Bancorp in matters arising out of the failure of IndyMac Bank ...

Wells Fargo in litigation ... with respect to securitization of subprime mortgage loans on properties located in Cleveland."

Underwriting syndicate [that is, investment bankers] in a class action alleging securities fraud.

A global financial services firm in an action brought by companies that insured principal and interest payments for a collateralized debt securitization.

MERS (at p. 5.) The presentation by MERS notes its registry was "Supported [by] Covington & Burling legal opinion."

More Than the Appearance of Conflict of Interest

But why does the tight relationship between Covington and Main Justice matter if I'm not alleging specific impropriety of the types Taibbi described? And I'm not. Indeed, as a general matter, outside of prosecuting financial fraud by Wall Street titans, I'm not suggesting that the relationship matters at all. But within that narrow but important context, how happy are you that your top prosecutor (Holder) and his key deputy (Breuer) were award-winning white collar defense partners for the same law firm that their recently departed staff (Garland, Fagell) just joined as partners? That's quite a bridge between enforcers and targets, isn't it? And what did Holder and Breuer learn, and what relationships with the banks and their execs did they develop, while practicing at Covington?

Does it give you a warm and fuzzy feeling to realize that those same two ex-staffers were deeply involved with what is supposed to be the key system for holding the architects of the financial crisis accountable? Are you thrilled that the top bank regulator for the past five years (Dugan) is now working for the banks? And after finishing their turns at Justice, where do you imagine Holder and Breuer will end up? After their previous turns at public service, they returned to Covington.

Malone noted: "Since becoming Attorney General, Holder's Justice Department has been extraordinarily passive in pursuing criminal and civil remedies against the mortgage bankers, securities firms and mortgage servicing businesses at the heart the 2008 collapse of our economy. ... The Covington & Burling relationship provides a glimpse into why the Department of Justice has been so passive."

What should be done about this situation? Well, attorneys are supposed to sit out cases where there's a conflict of interest, even with former clients. The model rule says an attorney is prohibited from representing a client -- and in this hypothetical instance, that client would be "The People" -- whose interests are "materially adverse" to a former client of that attorney or of the attorney's law firm -- that would be Covington's clients -- unless the former client consents. And if consent is given, the attorney can't use information from the former client to the disadvantage of that client, even if it would help the current client. That is, if Holder or Breuer knew some dirt, they couldn't use it.

Given their tenures at Covington, how likely is it that Holder and Breuer are free of conflicts when it comes to pursuing the titans of the financial crisis? Personally, I'd be a whole lot happier if they'd recuse themselves from such matters and name someone else with a strong prosecutorial background but no tenure -- no recent tenure at least -- representing the big banks or Wall Street.

But that's about as likely, I imagine, as criminal indictments of Wall Street.

View all Articles » Abigail Caplovitz Field is an attorney with a solo general practice on Shelter Island, New York. After graduating from NYU Law with honors in 2001, she worked as an associate for a major corporate law firm in New York City, and then as a consumer and good government lobbyist for the New Jersey Public Interest Research Group. Her lobbying duties included identity theft prevention, financial privacy and health care. She's written on topics as diverse as pharmaceutical marketing, toxic pollution, and racial profiling.

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Calm May Have Returned to Egypt, but Not American Tourists

Egypt's pyramids and antiquities museums have reopened after weeks of violent protests in Cairo. A trickle of intrepid European tourists is even flowing into beach resorts like Sharm el-Sheik and Taba. But so far, most Americans are giving Egypt a miss.

"Business is down sharply," says Ahmed Elemam, CEO of Tour Egypt, a Lubbock, Texas-based tour operator that arranges group visits for Americans. "We had to cancel hundreds of thousands of dollars worth of travel."

Stability Equals Nile Cruises

Abercrombie & Kent, a luxury tour company based in Downers Grove, Ill., says it canceled all its Egyptian tours through the end of March. But Pamela Lassers, a spokeswoman for the firm, says its luxurious Nile cruises will resume as of April 1.

"We're very hopeful the situation will resolve itself," she says.

Amr Badr, managing director for Abercrombie in Egypt and the Middle East, reports the situation is stabilizing in Egypt, now that President Hosni Mubarak has stepped down.

"There have been some tangible moves back to normal such as the reopening of the Egyptian Museum," Badr says. "All major tourist sites throughout Egypt are now open and functioning normally." He says his firm has already sent visitors to Cairo locations, and the feedback was very favorable.

Warnings, Uncertainty Hurt Local Economy

Egypt earns upwards of $13 billion a year from its tourism industry -- an integral part of the nation's struggling economy.

But Masood Ahmed, director of the International Monetary Fund's Middle East and Central Asia Department, told a press conference last week the decline in tourism was likely to seriously hurt Egypt.

"The recent popular protests in Egypt will definitely have a short-term economic cost," Ahmed said. "We will see tourism and investment going down, and certainly the 5.5% growth rate that we saw in the last two quarters of 2010 will likely be considerably lower in the next six months."

And that decline in tourism isn't likely to change anytime soon. The U.S. State Department is still warning Americans to stay away from Egypt for "non-essential travel."

"Due to continuing uncertainties regarding the restructuring of Egyptian government institutions, the security situation remains unresolved," the department said in a travel warning posted on its website. "Until the redeployment of Egyptian civilian police is fully restored, police response to emergency requests for assistance or reports of crime may be delayed."

The U.S. government has also ordered the departure of all nonemergency personnel from Egypt. Cairo is one of the largest duty stations in the world, with thousands of U.S. employees administering economic and military aid.

But British Prime Minister David Cameron visited Egypt this week -- and his government is allowing British tourists to return to Sharm el-Sheik and the Red Sea resorts. So has Germany's government.

Other Regional Business Is Stable

Pamela Lassers says there has been no fall off in visits booked by Abercrombie & Kent to other Middle Eastern countries because those tours are usually booked months in advance. For those who canceled vacations in Egypt, she says, the "overwhelming majority" rescheduled for the autumn or took other tours to Morocco or Tanzania.

June Farrell, a spokeswoman for Marriott International (MAR) -- which manages 29 hotels in the region -- says while its Egyptian business was severely affected by the recent violence, most other parts of the Mideast have seen no disruption. That includes the company's two hotels in Bahrain, which haven't been affected by the violence there.

"Travel to the Middle East by long-haul travelers is down, but not local business," Farrell says. "Obviously, those areas that have experienced political unrest certainly have been negatively impacted. Travel to Cairo and the Red Sea has not gone back yet -- that's going to take a while."

Bad Timing in Libya

But Farrell says Marriott's business in places Like Qatar, Dubai and Saudi Arabia has remained "pretty much normal." Most of that business is intraregional, with visitors from Dubai visiting Saudi Arabia and vice versa. "It's too early to say what the impact of the violence is going to be long term," she says. "It depends on how all this plays out."

Marriott had the misfortune last week to open a five-star JW Marriott branded-hotel in Tripoli, Libya, complete with oceanfront rooms and a ballroom. That business came to a quick end with the violent uprising against Libya's leader, Moammar Gadhafi.

"There were guests, but I think most of them have departed," Farrell says. "We're not accepting any new reservations at the moment." It may be a while before that happens.

View all Articles » Charles Wallace is a veteran business journalist who has written about economics, corporate finance and consumer electronics for Time, Fortune, The Los Angeles Times, The Financial Times and Institutional Investor magazine. He won the Business Journalist of the Year award given by the city of London for a piece about stock markets

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Fraud Files: Plenty of Blame to Go Around in the Madoff Case

Although it has been more than two years since Bernie Madoff's gigantic Ponzi scheme collapsed, the case is still making headlines. And it seems there's plenty of blame to go around. The only question is who will be left standing in this game of musical chairs? Many of the players are jockeying for position, hoping to recover some money from other parties who might be deemed partly responsible for the fraud.

One target is JPMorgan Chase. It had money invested in hedge funds that had ties to Madoff, and Madoff bankruptcy trustee Irving Picard has sued the bank for $6 billion. The lawsuit against Chase (JPM) says warning signs existed, but the executives just ignored them while earning hundreds of millions of dollars. Chase employees notified regulators of their concerns in late 2008, but it's thought that company personnel knew about issues much earlier than that. Madoff himself says banks and hedge funds were "complicit" in his fraud. I doubt anyone takes anything Madoff says seriously these days because the world knows him only as a conman.

Swiss bank UBS AG is being sued by the Madoff bankruptcy trustee for $2.5 billion. It is alleged UBS (UBS) "capitalized on the Ponzi scheme in the face of clear indications of fraud." The bank put $1 billion into Madoff's fraud, and allegedly received extraordinary returns on those funds. HSBC Holdings Plc is being sued for $6 billion, with Picard claiming HSBC knew about fraud concerns surrounding Madoff but did nothing to protect investors. The trustee adds that HSBC saw "warnings and other obvious badges of fraud" that should have caused them to act.

Estates and Individuals Sued, Too

The estate of Norman F. Levy settled with Picard for $220 million last year. Levy was reportedly a "surrogate father" to Madoff, and allegedly deposited and withdrew money from Madoff's funds in a much larger volume than anyone else. More than $83 billion allegedly went in and out of Levy's account with Madoff, and some say Madoff's access to this cash flow allowed the Ponzi scheme to flourish for so long. A settlement of $7.2 billion was secured from the estate of Jeffry Picower, representing the profits Picower received from his investments with Madoff. Of that amount, $5 billion will go to the bankruptcy trustee, while the remainder will go to the U.S. Attorney's Office in Manhattan.

Sonja Kohn, head of Bank Medici in Austria, is accused of sending $9.1 billion of investors' money to the Madoff funds, participating in what a lawsuit calls a "criminal relationship" with Madoff. Carl Shapiro reached a $625 million settlement with the Madoff trustee, although it was alleged he profited more than $1 billion from his investments with Madoff.

The New York Mets and its owner Fred Wipon were drawn into the battle over the Madoff fraud. A lawsuits alleges the Mets Limited Partnership invested $523 million with Madoff, but later withdrew $571 million. That $48 million profit is now being targeted. In total over 100 lawsuits now seek recovery of funds from many Madoff investors.

Who Really Missed the Fraud?

What's the funniest part of all these allegations? Many of the victims are finger-pointing, saying each of these parties should have known Madoff was committing fraud. Meanwhile, the Securities and Exchange Commission -- the supposed watchdog for investors -- was ignoring all the evidence it had of the fraud. Harry Markopolous notified the SEC of his concerns about Madoff several times, providing detailed narratives that supported his allegations of fraud. He offered to help the SEC understand his allegations and verify what he was saying. The agency summarily rejected him -- either through incompetence, corruption or both.

I have a hard time accepting the idea that the SEC is going to "get tough" on swindling of investors. Its track record is poor, and it often seems like there's no rhyme or reason to who the SEC decides to pursue. The agency couldn't catch a fraud that was happening on a grand scale right in front of it, even when it had someone (Markopolous) who did all the hard work and analysis proving that Madoff couldn't possibly be legitimately generating the investment returns he claimed.

It has been said that government agencies are even considering criminal action against some of the Madoff investors. Apparently, they're being accused of knowing they were involved in a Ponzi scheme, such that their continued deposits of cash might make them criminally liable for the fraud.

Don't Hold Your Breath

I've got an idea: How about if the people at the SEC who rejected Markopolous's analysis and evidence are prosecuted criminally? They had at least as much information as the Madoff investors, and probably more. Let's hold them accountable for the failure to stop the fraud scheme years before it finally collapsed.

But something tells me the SEC won't be too keen to prosecute its own people and that other law-enforcement agencies won't want to take them on, either.

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Inflation Seems Like a Safe Prediction, but It's Hardly So Simple

Wall Street's penchant for overreaction aside, it's understandable why many investors might be bracing for scorching inflation ahead. Already posting a stronger rebound than many commentators had expected, the U.S. economy shows signs of picking up yet more steam. Some high-profile economists are expecting growth rates as high as 6% in the year ahead, and bellwether companies like Caterpillar (CAT) continue to report strong global demand.

That by itself is often enough to result into inflationary pressure. But lately, fears of a conflagration in prices have been exacerbated by the vast easing measures the Fed continues to take in response to the financial crisis.

The reasons to count on major inflation under these circumstances seem straightforward enough. But much like the actual impact of spiking commodity prices, the way inflation plays out is far more complicated. And while the usual pressures get plenty of press, countervailing forces can be far easier to overlook.

Restarting Idled Resources

While U.S. GDP may be ready to deliver impressive gains, measures like industrial production, which took a major hit during the recession, still have a ways to go. Indeed, industrial production remains 6% below its pre-recession peak, analysts at TD Economics wrote in a research note this week, and it will take another year to close the gap even at the present three-month average growth rate.

"Throughout the post-recession expansion, growth in [industrial production] has stemmed not from the generation of new productive capacity, but from increased utilization of existing resources that had lain idle during the downturn," analysts at TD Economics wrote in a research note.

That means plenty of spare capacity can still be brought on-line, and that should help dampen inflationary forces. "With industry operating below potential, we believe inflation will stay subdued for now," the analysts wrote. "And with a fair amount of slack to absorb, the Fed will be in no rush to tighten monetary policy soon."

All that money the Fed created, meanwhile, might not lead to inflation as directly as some of Ben Bernanke's most strident critics claim. Along with the raw supply of money, the amount of that cash put into circulation -- sometimes called the velocity of money -- plays an equally important role.

Dormant Cash Isn't So Dangerous

And that leads to a much more complicated relationship to inflation than the constant howling about the obviously dire consequences of the Fed's money-printing would suggest.

"In order for any monetary variable to be reliable, the so-called 'velocity' of money in circulation needs to be stable, which is not often the case," Jim O'Neill, the high-profile head of Goldman Sachs Asset Management wrote in a research note. More money supply, in other words, doesn't simply translate into inflation. Cash laying dormant doesn't bid up the value of prices.

It's also natural for investors to think back to times when inflation ravaged the economy, like during the 1970s, when assessing risks. But things have changed dramatically since then, and the fact is that inflation has remained at benign levels for decades since that awful time. A combination of many fundamental shifts in the economy is often credited for this.

"Originating with the tough anti-inflationary policies of Paul Volcker at the Federal Reserve in the U.S., the widespread introduction of deregulated markets, globalization, and the introduction of the Internet have all been huge forces to bring the inflation process to where we broadly sit in current times," O'Neill wrote.

Given an economy now gaining steam and a vast expansion in the money supply, it's easy to assume inflation is up next. The causes of inflation, however, are anything but straightforward. And investors are better off keeping a close eye on incoming data than blindly believing the pundits who have a simplistic view of inflation.

View all Articles » Vishesh Kumar, previously a staff reporter at The Wall Street Journal, has joined DailyFinance, where he will be focusing on investing, particularly in tech and telecom. Vishesh has also been on the staff of TheStreet.com, where he produced hundred of videos and also served as a writer; his work has appeared widely in many other major publications. His TV appearances include CNBC and ABC's "Good Morning America," and he has been a radio guest on National Public Radio and "The Brian Lehrer Show."

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