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What's Up At the Fed?

Interest-Rates / Quantitative Easing Dec 08, 2010 - 06:08 AM GMT

By: Dr_Jeff_Lewis


The last week was a full Federal Reserve soap opera, full of events and action that should appear suspicious to most anyone. 

First, the Federal Reserve complies with a request to release information about its emergency lending and monetary policy actions during the financial crisis, at which point it is found the Fed was willing to hand cash to just about anyone.  Next, Bernanke comes out on 60 Minutes, a very popular and watched program, to discuss quantitative easing three.  Has the chairman gone mad? 

Information Release

The Fed's balance sheets should have aided in clearing any suspicion that the United States' central bank isn't out to fix the economy.  Through its emergency lending programs, the Fed lent to companies like General Electric, Harley Davidson, Verizon and even McDonald's in absolute secrecy.  In fact, General Electric, which owns NBC and several other media outlets, didn't even bother to make news of its own loan. 

To make matters worse, it was found by the Wall Street Journal that hedge funds, not community banks or small business lenders, were the ones accessing the nearly free money, putting up as little as 5% down to then invest speculatively and achieve returns as high as 40%. 

While it may have been fun for data diggers to poke through some $9 trillion worth of back and forth transactions so complex they could make an experienced money launderer's head spin, all that most really needed to know was on the surface.  Why was it that just one day before the United States committed more to a European bailout were these documents released?  And why were they released only weeks before a change in the US House Financial Services subcommittee, where Bernanke is routinely grilled?

Opportune Timing

Obviously, the Fed's release was more of a distraction than real news, showing its “absolute transparency” before becoming part in what will be one of the biggest bailouts in international history.  Of course, the bailout will likely be masked with a complex transaction.  The US Treasury will borrow cash made available by QE2, while then giving it to the IMF, which will then hand deliver it to the institutions and governments that so desperately need it. 

Meanwhile, Bernanke will appear on one of the highest rated television shows most influential with older voters to talk up the Fed's role in promoting growth in US employment – never mind that the inflated funds are going to hedge fund gamblers, corporate friends, and foreign countries.

Helicopter Ben doesn't just stop at the Fed's newly found role of growing employment. He also leaves open the possibility of future quantitative easing past the second round of inflation.  Of course, the best reaction from this comment is in the silver markets, which strike $30 while gold flirts around $1420.  The equity markets, once happy that Bernanke was going to underwrite the stock market, are now realizing that this man is economically dangerous, selling off stocks to buy “safehaven assets” such as US Treasuries in an effort to front run QE3.

The markets are broken, and Bernanke and Company haven't the slightest of clues on what to do to fix it.  For Bernanke, the answer is simple in good times and bad: distort and inflate.  It's sure he'll do both for some time to come.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of and

    Copyright © 2010 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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