Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
The Important Impact of This “Secret” Gold Agreement - 31st July 14 - Peter Krauth
The Something For Nothing Society Death Spiral - 31st July 14
The Social Memory Dump, Shredding Society - 31st July 14
How Safe Are Unallocated Gold Bullion Accounts? - 31st July 14
USDJPY Big Bear Market - 31st July 14
No More School in Gaza Because All the Children are Dead Chant Israel's Jewish Fundementalists - 31st July 14
The Iron Dome Inside The Heads of Israel’s Leaders - 31st July 14
You Know a Politician or Talking Head is Clueless When….. - 31st July 14
Don't Get Married to Your Gold Stocks—It's a Performance-Based Relationship - 31st July 14
Stock Market Parabolic Collapse - Sowing the Seeds of the Next Depression - 30th July 14
How to Profit from the Russia Ukraine Conflict - 30th July 14
Greenspan: U.S. Economy Running Out of Buffer; Stock Market to See Significant Correction - 30th July 14
Rogue States And Loony Tunes - 30th July 14
Anne Elk’s Theory On Brontosauruses - 30th July 14
Our Totalitarian Future - Totalitarianism NOW! - 30th July 14
Stocks Bear Market Formation Revealed - 30th July 14
We Just Found “The Future” - 30th July 14
What the “Steak Bandit” Says About Asset Values - 30th July 14
Designer War By Default - Seven Types of Elite Madness - 30th July 14
Death of the U.S. Dollar? Gold an Inflation Hedge? Really? - 29th July 14
We’re Ready to Profit in the Coming Gold Price Correction—Are You? - 29th July 14
Their Economy Will Collapse, Including Ours - 29th July 14
Silver Prices – Megaphone Patterns - 29th July 14
Real U.S. Interest Rates - Fed Exit a Blue Pill? - 29th July 14
Why Israel Should NOT Exist, Just Like Any Other Rogue State - 29th July 14
Gold Still Looking Good - 29th July 14
Silver Price Set To Star - 29th July 14
Our Population Growth Totalitarian Future - 29th July 14
World War 1 Cause and Consequences - The Planned Destruction of Christendom - 29th July 14
Will Crashing Commodities Crash the Stock Market? - 29th July 14
Ukraine MH17 - Washington Thinks Americans Are Fools - 29th July 14
Stock Market Bubble Warning - 29th July 14
Gold Price and U.S. Dollar’s July Rally - 28th July 14
Second Quarter Corporate Earnings: Marching Toward a Strong Economic Recovery - 28th July 14
Time to Put a New Economic Tool in the Box - 28th July 14
Mossad in Gaza, Ukraine and the Cult Of The All-Powerful Elite - 28th July 14
Elliott Wave Gold Price Projection Since 1970 - 28th July 14
Investors Remain Uncertain As Stock Fluctuate Near Long-Term Highs - Will The Uptrend Extend? - 28th July 14
The Mass Psychology Of Decline - 28th July 14
Will the US Destroy the World? - Don’t Expect to Live Much Longer - 28th July 14
GDM and GDXJ Gold Stocks In-depth Look - 28th July 14
Stock Market One FINAL High? - 28th July 14
What It Means - Paradigm Collapse And Culture Crisis - 27th July 14
Wall Street Shadow Banking: You Can’t Taper a Ponzi Scheme: “Time to Reboot” - 27th July 14
6 Tips for Picking Winning Gold Mining Stocks - 27th July 14
Israel's War on Children, Exterminating the Palestinians Future - 27th July 14
Guilt By Insinuation - How American Propaganda Works - 26th July 14
Surprise Nuclear Attack On Russia To Liberate Ukraine - 26th July 14
Use "Magic" Of Gold/Silver Ratio To Greatly Increase Your Physical Holdings - 26th July 14
Derivatives Market Species Origins - Abuse, Props and Risks - 26th July 14
Stock Market Manipulation and Technical Analysis - 26th July 14
China’s Stock Market Finally Looks Like A Buy - 26th July 14
Ed Milliband Fears Israel Jewish Fundamentalist Gaza War Massacres Backlash - 26th July 14
The Big Energy = Power Battle Is Coming - 25th July 14
USrael - Zionists in Control of America's Goyim Brainwashed Second Coming Slaves - 25th July 14
More Weakness Ahead for Gold Miners - 25th July 14
Gold Price Strong Season Starts - 25th July 14
Geopolitics and Markets Red Flags Raised by the Fed and the BIS on Risk-taking - 25th July 14
Gold Lockdown Until Options Expiry - New Singapore Gold Contract Threatens Price Manipulation - 25th July 14
The Bond Markets, Black Swans, and the Tiny Spirit of Santo - 25th July 14
No Road Map For Avoiding The Future - 25th July 14
Israeli War Machine Concentrating Women and Children into UN Schools Before Killing Them - C4News - 25th July 14
Israeli Government Paying Jewish Fundamentalist Students to Post Facebook Gaza War Propaganda - 25th July 14
Why the Stock Market Is Heading For A Fall - This Time Is Not Different - 25th July 14
An Economic “Nuclear Strike” on Moscow, A “War of Degrees” - 25th July 14
BBC, Western Media Working for Israeli Agenda of Perpetual War to Steal Arab Land - 25th July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

Bernanke’s Plan for the Middle Class Fattening Wall Street, Starving Main Street

Politics / US Politics Apr 25, 2012 - 01:38 AM GMT

By: Mike_Whitney

Politics

Best Financial Markets Analysis ArticleDo you want to understand what the Fed is doing, but don’t have time to wade through volumes of tedious economics writing?

Well, now the pros at dshort.com have made all that possible. They’ve reduced 4 years of monetary policy into one chart that illustrates exactly what the Fed is up-to and who benefits from the policy. Here’s the link.


The chart shows how the Fed’s lending facilities, zero interest rates and $700 billion bank bailout (TARP) helped to put a bottom under a market that had fallen off a cliff. Then came the first round of Quantitative Easing (QE1) during which the Fed purchased $1.25 trillion in mortgage-backed securities (MBS), $200 billion in US Treasuries and $150 billion in agency debt (Fannie and Freddie) This massive infusion of liquidity triggered a sharp rebound in equities starting on March 9, 2009. It also transformed the Central Bank’s balance sheet into the largest waste treatment facility on planet earth.

By May 2010, the Fed’s adrenalin rush began to wear off and stocks began to sag once again. That led to a second round of QE, a $600 billion mainline injection which sent equities soaring until midyear 2011. When the markets tailed off in May, Fed chairman Bernanke initiated a third round of QE (Operation Twist) which buoyed stocks with another $400 billion in liquidity. Operation Twist is set to end in mid-June, after which Bernanke will undoubtedly find some excuse to launch yet another round of bond buying to keep stock prices artificially high. Many of the big banks and bond funds have already started buying up distressed MBS in anticipation of QE3. It’s not likely that Bernanke will disappoint them.

So, there you have it; 4 years of policy in one picture.

What I find so interesting about Bernanke’s policy is that no one (who follows the markets) even disputes what he’s doing anymore. You know, there used to be a debate about whether the Fed was “juicing” the market or not. There’s no debate anymore. Even the folks over at the Wall Street Journal seem to agree that fundamentals no longer matter. What matters is liquidity, boatloads of virtual liquidity provided gratis via the Fed’s printing operations. As one of the WSJ’s journalists noted just this week; stocks go “up when the whiff of government intervention is strong, (and) down when it recedes.” (“Sowing Seeds of the Next Major Crisis”, Wall Street Journal) And the way this plays out is that– even when the economic data is bad– stocks still climb higher if the Fed signals that more help is on the way.

Now check out this brief commentary by Northern Trust’s (former) chief economist Paul Kasriel who tries to answer the question: “Has the Fed Boosted the Stock Market?”

Kasriel: “You bet. And aggregate demand for goods and services, too. If the Fed had not expanded its balance sheet in the past few years, the weakest U.S. economic recovery in the post-WWII era would have been even weaker and U.S. stock prices would have suffered. ….. Even with the Fed’s second round of quantitative easing QE) from November 2010 through June 2011, total MFI credit, private plus Fed, has been growing well below the long-run median rate for private MFI credit. But without QE2, credit creation for the U.S. economy would have been even weaker.

So, yes, the Federal Reserve’s actions have benefited the stock market as well as aggregate demand for goods and services in the U.S. economy. You got a problem with that?” (“Kasriel’s Parting Thoughts – Has the Fed Boosted the Stock Market?”, Northern Trust)

Actually, I suspect many people  DO have “a problem with that.” While one can certainly make the case that the Fed was justified in taking action during the throes of the financial crisis in 2008; how does one defend Bernanke’s ongoing interventions which have distorted prices and rewarded the investor class at the expense of ordinary working people?

What’s important is not merely the “credibility of the markets” which have been greatly compromised by Bernanke’s not-so-invisible hand, but the basic “unfairness’ of the present policy; a policy that showers wealth on the filthy rich while keeping working people in a permanent state of near-depression.

Does that sound fair to you?

The stock market doesn’t need more help. The Dow Jones has more than doubled in the last 3 years while the S and P and Nasdaq are not far behind.. So, why is the Fed still pumping up stock prices? Wouldn’t it make more sense to implement policies that stimulate demand and get more people back to work instead of just adding more liquidity to markets that are already swimming in capital?

Sure, it would. But that’s not the policy. The policy is to keep the investor class happy while preaching austerity to the masses. Here’s an excerpt of Bernanke’s comments at a recent Congressional hearing:

“Even the prospect of unsustainable deficits has costs, including an increased possibility of a sudden fiscal crisis. As we have seen in a number of countries recently, interest rates can soar quickly if investors lose confidence in the ability of a government to manage its fiscal policy. Although historical experience and economic theory do not indicate the exact threshold at which the perceived risks associated with the U.S. public debt would increase markedly, we can be sure that, without corrective action, our fiscal trajectory will move the nation ever closer to that point.”

Have you ever read such nonsense in your life?

So what is Bernanke saying? He’s saying that it’s okay when the Fed  loads up on $2.3 trillion in putrid MBS and other toxic gunk from underwater banks and other crooked financial institutions, but “not okay” when the government spends money on public infrastructure, food stamps, health care, Social Security and other vital services that help real people.  Doesn’t it seem like Bernanke’s got his priorities all wrong?

The real economy is in more distress than ever. The homeless shelters are bulging, the food kitchens are maxed out, and 46 million people are on food stamps.  Enough with the stock market already! It’s the real economy that needs help. And–despite the faux debate in the media about “belt tightening” and budget deficits–economists generally agree about what needs to be done. We need more fiscal stimulus. Here’s a clip from an excellent paper by Pimco’s Paul McCulley and Zoltan Pozsar titled “Does Central Bank Independence Frustrate the Optimal Fiscal-Monetary Policy Mix in a Liquidity Trap?”

“The United States and much of the developed world are in a liquidity trap. However, policymakers still have not embraced this diagnosis which is a problem as solutions to a liquidity trap require specific sets of policies. There are policies that will work, and there are policies that will not work. Correct diagnosis is necessary to prescribe the right policy medication.

A liquidity trap is a circumstance in which the private sector is deleveraging in the wake of enduring negative animal spirits caused by the bursting of joint asset price and credit bubbles that leave private sector balance sheets severely damaged. In a liquidity trap the animal spirits of the private sector cannot be revived by a reduction in short-term interest rates because there is no demand for credit. This effectively means that conventional monetary policy does not work in a liquidity trap. …

This is not to say that the private sector should not deleverage. It has to. It is a part of the economy’s healing process and a necessary first step toward a self-sustaining economic recovery.

However, deleveraging is a beast of a burden that capitalism cannot bear alone. At the macro level, deleveraging must be a managed process: for the private sector to deleverage without causing a depression, the public sector has to move in the opposite direction and re-lever by effectively viewing the balance sheets of the monetary and fiscal authorities as a consolidated whole.” (“Does Central Bank Independence Frustrate the Optimal Fiscal-Monetary Policy Mix in a Liquidity Trap?”, Paul McCulley and Zoltan Pozsar,  Global Society of Fellows)

Repeat: In a liquidity trap “conventional monetary policy does not work”.  In other words, the Fed does not have the right tools for getting the job done. (How many times have you heard that before?) That’s why Congress needs to step in. It’s their job to provide the resources for employing more people, increasing spending, boosting demand, stimulating investment, lifting GDP, and getting the economy running on all 8 cylinders again. This is the “virtuous circle” of which economists speak, and which remains beyond our grasp because venal politicians have handed over policymaking to the Fed.  But, here’s the problem; the Fed doesn’t believe in fiscal policy, in fact, they’d just as soon do away with it altogether. Just check out this extraordinary interview with James Bullard, President of the Federal Reserve Bank of St. Louis, which appeared in the  Wall Street Journal. Bullard explains why the Fed really doesn’t need congress anymore. They’re ready to go-it-alone and run the whole shooting match from the marble halls of the Eccles Building. Here’s a clip:

“The Federal Reserve’s ability to generate stimulus even when interest rates are at 0% negates the need for the government to step in an provide additional stimulus to the economy, a top central banker said Friday….

Bullard instead argued the crisis and resulting recession has shown the Fed can still offer plenty of stimulus on its own even when it can’t cut its traditional policy tool, the overnight fed funds rate, any further….

Because the central bank can still affect the economy, theory suggests the government can stand aside and leave the act of stabilizing the economy to the central bank. The experience of recent years shows “the Fed was not out of bullets…. We’ve been able to react fairly effectively” over the course of the last three years, Bullard told reporters in a conference call.

The paper he was presenting was called “Death of a Theory”…

“Stabilization policy should be left to the monetary authority, which can operate effectively even at the zero lower bound,”… “Unconventional monetary stabilization policy has been quite effective over the last three years, making fiscal action redundant.” …….. “the turn toward fiscal approaches to stabilization policy has run its course.” (“Fed’s Bullard: Best To Leave Economic Stimulus To Fed”, Wall Street Journal)

How do you like that? So, according to Bullard, the Fed’s recovery effort has been so sucessful, that Congress can just fold their tent and go home. “We don’t need you anymore.” Right. Try telling that to your son who’s up to his eyeballs in student loans and just took a job at K-Mart selling plastic ficus trees to retirees for $7.50 an hour.

“Just leave it to us,” says Bullard. “We gotcha covered.”

Do you find that reassuring?

What Bullard means by “Death of a Theory”, is that the theories of John Maynard Keynes–which led to 50 years of prosperity — are not going to be used anymore. The Fed is going to continue on the same path that it is now, implementing policies that only benefit the banks and investor class. That means that the frayed fiscal lifeline that presently keeps the US middle class from sinking beneath the waves will eventually be severed leaving millions of people jobless, homeless and destitute.

How’s that for a plan?

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

© 2012 Copyright Mike Whitney - 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.

Mike Whitney Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014