Bernanke Confirms That The Key Goal Of The Fed, And QE2, Is To Boost Stock Prices

Tyler Durden's picture

So much for the Fed's two mythical mandates of promoting "maximum employment" and maintaining "price stability." First, we had Bernanke's predecessor Greenspan confirming in late July on Meet the Press what everyone knows: namely that the primary goal of the Fed is merely to encourage higher stock prices: "if the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here." And now, courtesy of an Op-Ed by the current chairman, we get confirmation, again, just three months later, from the current chairman, that the Fed cares mostly about stimulating high stock prices, solely to create the completely artificial illusion of "wealth" for the few, the proud, the shareholders, and the banking oligarchy.

Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

See, the thing is Bernanke is absolutely right... when it comes to a few hundred thousand "consumers" (out of over 330 million). One group of Americans whose wealth is tied into the equity value of any given company, typically insiders, are more than happy to take advantage of this massive surge in artificial stock valuations. This last week for example they took over 660 million advantages worth. We repeatedly demonstrate that the ratio of insider selling to buying is now beyond grotesque. In the past week alone it hit over 400 (and was over 2,300 a few weeks ago) - see chart at bottom of post. So yes, those for whom Bernanke's "easing" is working, are taking advantage of it. As for the other group of beneficiaries, the ones who are going to receive over $100 billion in bonuses this year, well: they already literally own Bernanke, so we are not too worried about them either.

As for everyone else, tough luck. Since for 99% of America, surging prices will not be offset by any appreciation in their meager stock holding, nor will deteriorating employment prospects, declining home values, and a recessionary relapse in the economy provoke Americans to actually part with their increasingly meager capital as confirmed by the 26th sequential outflow from US retail mutual funds. In other words, the bulk of America has nothing to look forward to except encroaching poverty, and retirement fund balances substantiated by nothing than fraudulent, FASB-endorsed, stock valuations.

Furthermore, when Bernanke said that: "our earlier use of this policy approach had little effect on the amount
of currency in circulation or on other broad measures of the money
supply, such as bank deposits" he was only kidding, as the following chart of M2, whose primary component are precisely bank deposits and savings, demonstrates:

Furthermore, by adding that "Nor did [QE] result in higher inflation", Bernanke probably did not have this chart in mind:

But lying and scheming is nothing new to the Chairman. As we showed earlier, Bernanke lied under oath to Congress. Why should he start telling the truth now? Additionally, when all those who are chasing stock momentum higher are piggybacking on the "frontrun the Fed" trade, are benefiting, why should they voice disapproval with a strategy that is helping them, if only until such time as the market experiences another massive, and this time terminal, crash... No matter how destructive it is for everyone else.

At the end of the day, it is a question of time: when the people of America realize that all those who are selling on the chart below are doing so at the expense of 99% of American population, and are also sentencing the country to a fate of debt-based insolvency, the time will come. The time will be one of a violent overthrow of the Fed.

Until then, America, for some odd reason believing it has achieved some atual change in the political arena, can just continue to bend over, and take the Fed's daily dose of lies, wealth transfer, and involuntary indebtedness, like a flock of very docile sheep, which has its iPad and iPhone. After all, who needs anything more.

Update: it took Jan Hatzius about 15 minutes to respond to our, and certainly others', interpretation:

Federal Reserve Chairman Ben Bernanke published an article in Thursday's Washington Post, available on the paper's website this evening.  The article constitutes a forceful justification of the $600 billion in longer-term Treasury purchases announced earlier today.  Bernanke says that the easing in financial conditions -- specifically the drop in long-term interest rates and the increase in stock prices -- that began as investors anticipated further Fed action will boost spending, and this boost, "in a virtuous circle, will support further economic expansion."  He does not mention the dollar as a channel of transmission for QE2, probably because he does not want to be seen -- either by the Treasury (which is responsible for dollar policy) or by foreign policymakers -- as pursuing an overtly weak dollar policy.  Bernanke also argues that concerns about substantially higher inflation are unfounded because the Fed has both the means and the will to keep inflation low and stable over time.

We do not see significant implications for monetary policy from the article.  Some will argue that it seeks to justify targeting asset prices and that this is an inappropriate objective of monetary policy. We think this is a misinterpretation/overinterpretation of both Mr. Bernanke's analysis and, more importantly, the policy itself.  While Fed asset purchases are intended to work via their effects on asset prices, that is not the same as setting specific targets for those prices.

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FEDbuster's picture

Benny "Bubbles" Bernanke the bankster's best buddy:

http://www.youtube.com/watch?v=vdED3rVgIu4

"I will try again to blow a bubble that will last all day!"

morkov's picture

the owners of the means of production get higher value for their harware??

Instant Karma's picture

Was waiting for markets response to Election and QE2. During US trading, not much. However, overseas, it's meltup. Dollar slide. Commodities meltup.

Time to deploy cash into a combination of stocks and commodity ETFs.

Have already accumulated physical metals.

nmewn's picture

Been watching it too.

It's unfortunate we have to play the stock game by their irrational rules.

Set the alarm clock for the first week of December...that should be enough time for them to get it to the trough of B ;-)

Xedus129's picture

What are you talking about, the recovery is underway! /end sarcasm

On a more serious note, they did a number on gold yesterday I hope some people got in before the 25$ shoot up this AM

BigJim's picture

Could someone please explain to me how increasing the money supply can lead us out of recession/depression when the fundamental problem is that leveraged asset values are out of whack with fundamentals, because the fractional reserve banking system has goosed their price?

For a recovery, either the asset prices have to come down (further deflation) or the cost of unleveraged goods (commodities, labour) has to rise (inflation)... or a mix of both. They're not allowing much deflation, so we're left with inflation.

How can people like Bernanke not see this? Or is it purely because he's primarily interested in meeting the needs of his shareholders (the private commercial banks), and he doesn't give a flying fuck about the economy as a whole?

Am I missing something here?

I saw what I thought was a very nice explanation for how the US$ will collapse in the ft, written by one "Viji Varghese":

I apologise if it's a bit long but I'd love the people here to comment on its logic:


"Lets face the facts here. This government's debt is 100% of GDP and the bloodletting has no end in sight. With a yearly fiscal budget shortfall of about 10% the Fed is purchasing TREASURIES in order to cover the shortfall on the government balance sheet. Thus they are fulfilling two objectives; one, help the government maintain aggregate supply levels (price of goods and services) and two, support asset prices in order to prevent any further deflationary erosion ( Like Realestate). So in the Feds calculations if you stabilize aggregate supply levels and prevent erosion of assets values you in turn would create an economic recovery, right?! WRONG!!

Now follow closely to what I am about to say. We have never recovered from the September 2008 crash. All this talk about a “double dip” is a moot point as we never clawed our way from the first dip. The economy is as it has been for the last two years; heading down, no matter what all the talking heads on radio and TV say. For you see in trying to perform the same techniques which were applied with the crash of 1929 and 1933; the Fed has exhausted its cache of stimulus tools. They have done nothing and they have nothing left. After pumping trillions into stimulus plans, and trillions to improve balance sheets of the “Too Big to Fail” banks they have accomplished one thing; they have UNDERMINED TREASURIES!!

Treasuries are the very threads that is holding this economy together and now these policies have metamorphosed them into the NEW AND IMPROVED TOXIC ASSET!! Every world economy knows that they are overvalued, they know that their yields are mediocre and still no one in the main stream talking head shows ever rails against or even exposes them. The whole world cart blanche walks on eggshells around treasuries as if it were a Financial Nuke with a trip wire trigger and a timer. A bomb if you will....which IT IS.

History shows us a pattern when and how this financial Hiroshima goes off. It begins like this:

There will be a slight and sudden rise in a price of a necessary commodity like Oil

This will send tremors through the treasury yields, Treasury Mangers will sell off their allocations and go into the commodity (e.g. Oil) in order to grab a profit. I guarantee that they will sell treasuries as it's the primary asset that many of them can sell.

This will trigger the Fed to step in and buy the dumped Treasuries as they are trying to stave off deflation by keeping low yields and cheaply funded. (Quantative Easing) The Fed knows that the Bond Market senses a “Treasury Bubble” and once again they turn on the printing press to buy every treasury in sight to calm the markets and create asset price stability

The Zombie “Too Big to Fail” Banksters smell blood in the water and begin to dump their obscene amount of treasury notes. You see these living dead institutions were never nationalized but got the best parts of nationalization; total liquidity (stimulus money) and easing of accounting and regulatory rules. The flip side was the Fed required that they purchase US treasuries. You see buying up of the treasuries allowed their balance sheets to look well funded and monetized, all the while hiding the toxic assets that were being siphoned off their books by the Fed since 2008.

The Panic sets in...Asset managers are not stupid they know the US is in much worse shape than Greece. They know that there is a “Treasury Bubble”. So when these mangers see the mass buying of treasuries by the Fed, and the mass dumping by the Zombie Banks, it will be their signal to get out of Dodge!!

The Zombie To Big To Fails and Asset Managers that have dumped their toxic treasuries will look for a place to park their new found cash. Now where might you think they can put all that new cash into? COMMODITIES. Commodities of all types will shoot to the moon. From precious and industrial metals, Oil, food staples will all skyrocket in price, catching the American public with their pants down. Commodities will be the only safe haven to go to and this is when the American public will get it's first taste of hyperinflation and it will taste like gasoline when the price of oil surges passed $150 a barrel in one week equating to $10 a gallon gas!!

Commodities SOARS and DOLLAR COLLAPSE ensues. The sell off of assets in purchase of commodities will be ballistic. People will unload homes, cars, personal belongings all once thought important for real assets like Gold, Silver, Food, Weapons, and Oil. In hyperinflation your $400,000 house will be worth $60,000 or 70 pieces of silver, for your house will not be able to help you buy things you need, while a commodity like gold and silver can.

Most of all the government can't stop it."

 

BigJim's picture

I should add that I don't agree with his statement

For you see in trying to perform the same techniques which were applied with the crash of 1929 and 1933; the Fed has exhausted its cache of stimulus tools

but that's not material to his analysis overall

rocker's picture

Now Now Guys and Gals.  Elliott Wave's Robert Prechter and Co. says the Fed does not matter.

He's calling for a out right short, again, just like he did in February of 2010.

How did that butt head call go. Oh, by the way, short silver @$17.00.  He did that call too.  Yup.

Bill Lumbergh's picture

Someday he may have his day in the sun...whatever collapse does happen will not be when everyone has a specific date circled on their calendar.

espirit's picture

Even a broken clock is correct twice a day.

...Ace quote.

Turd Ferguson's picture

Prechter is nothing but a two-bit con artist and snake oil salesman.

centerline's picture

I don't think so.  I think he just makes the mistake of calling top and bottoms.  This crap is going to work right on cue via larger cycles - just that the noise at lesser intervals becomes more chaotic and harder to predict.  Prechter just underestimated the incredible level of manipulation we are seeing on the shorter time frame.

rocker's picture

You better wake up and realize how Prechter's EW cost me over 100K. He is a scumbag who sells fear. He does not know nothing about the markets. He says, "The Fed only matters to the markets for a couple of days". And has repeatedly said so. He does not trade his own calls. No conviction. Just another Ponzi Scam. Risk free news letters, I think not. This bastard, with All his employees belong in jail with Bernie Madoff.  Did I make myself clear.

He is the ultimate wealth destroyer, but profits all the same.  Yup.    He Profits.  You don't.  But he will sell you shit.

Careless Whisper's picture

in a virtuous circle

isn't anyone gonna comment on this?

Wyndtunnel's picture

More like a flat spin.  And then (the Golden) Goose will hit his head on the canopy while ejecting and die.

Jason T's picture


The title of Chapter 1 is "A license to Print Money" and starts off with a quick story from a play written a century prior called "Faust" by a famous German Poet named Goethe. In his play, there is a scene where the Emperor, who sold his soul to the Devil, Mephistopheles, is lacking money and asks the Devil to create it. The Devil accepts this task and a prototype note is created and multiplied a thousand times by magicians overnight. The Chancellor then gives the Emperor the note that has turned an ill into a good.

The authors go on to write on pg. 42 from this book:

It is fitting that licence to print money should have originated with a spirit akin to the Devil, the father of lies. The currency of Germany during the inflation years was a gigantic lie, which the nation recognized for what it was only in the last stage. (emphasis mine) The road to inflation, like the road to hell, is paved with good intentions, and it was to turn "ill into good" that the German government gave the licence to print money.

Marc45's picture

At what point did Prechter go into your bank account and lose your money?  The dude gives advice (wrong advice in my opinion) but YOU pushed the buy/sell button.  Take responsibility for your own actions.  That's what's screwed up with America, no one wants to take responsibility and instead wants to blame someone else and have someone else pay for it.

tmosley's picture

Right, so we should keep paying attention to him even though he has been wrong on every call.

Come on.  The guy is just pissed that he lost a bunch of money heeding the words of a flim flam man.  The point is that Prechter is wrong, big time, and paying attention to him will lose you money, just like Bernie Madoff.

Snidley Whipsnae's picture

I bought more physical silver at $17 and am certainly glad that I did.

I certainly would not let Prechter's calls influence what I do.

Who didn't know that silver was probably going higher, along with most other commodities, with QE2 all but a sure thing.

IMO, this QE2 is a window of opportunity for those still in stocks to get out. The insider sell to buy ratio is a good indicator of what those in a position to know think about the future prospects of their own companies/stocks.

rocker's picture

I am happy to say, I bought lots of metals before and after a 17 dollar tag on silver.

It is why my friends call me the mineral man.  Have many kinds of stuff from the earth.

Rhodium has always been another favorite.  Still cheap.

Common_Cents22's picture

Do you watch CNBS?  Blame them too.   Do you read the WSJ, Barrons, IBD?  Sue them!

Look in the mirror.  Quit being a victim of life, grow a pair of balls and move on.   Real traders and real men take responsibility for themselves, not point fingers. 

Most market trading approaches including Elliott depend on one thing, ummmm.....a market.    This is no market.   It's manipulation at the highest levels and at the micro levels (HFT).  The only people who have advantage now are the politically/money connected and HFT computers. (soros, gross etc...)   The rest of us have to read between the lines and zig when the talking heads are saying zag.  

HFT is reported to be 40-70+% of the volume.  They don't care about any fundamental anaylsis or what any underlying company is doing, but only micro short term techncial movement.   If this keeps up, the market can become nearly disconnected from reality and take a life of its own to defy gravity.

Xedus129's picture

I agree, its like trying to solve a 50000000th order differential equation, 4999999999 of which are manipulative and unpredictable (to us).

dcb's picture

hard to tell

after all the fed initial buy program ended that march.

You know I can't post what I think because I'd get arrested. At least he confirms the worst of trickle down economics. make the wealthy more wealthy and make everyobe else poorer.

why can't he just crawl into some hole

where he belongs. I got to get out of this f"ing country. he actually believes this stuff which sickens me. But he is paid to do so.

Something Wicked This Way Comes's picture

Could these fuckers do this with Glass Steagall in place? My ass is on fire.

Charles Mackay's picture

Ben says stocks, beeches.  Are we surprised here?

As for myself, I've been saying I'll take mine with silver.

 

rocker's picture

Ben says he is authorized by his dual "Man Date".  Hey Barney, we got a job for ya.  Yup.

b_thunder's picture

The test is this: are the newly elected T-Party congressmen and women  4 real, will they join Ron Paul, or will they be reminded who provided the campaign contributions and will guarantee future employment?

 

 

Gubbmint Cheese's picture

I know a few of you Fed assholes read zh... So let me say this loud and clear: fuck you.

obamaphobe's picture

i have a feeling that there will be no dissenters to the "fuck you"

sethco's picture

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  YOU

homersimpson's picture

Now that is old-school. +600 billion .

mathdock's picture

Awesome!  +1T Zimbabwe Pounds.  Oh, that's a quarter.  Sorry.

MarketTruth's picture

Here's to you Ben Shalom Bukkake

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Chemba's picture

wow.  that is cool.  reminds me of the old Digital Equipment Corporation line printers!  The one that had the telephone cradle that squawked and squealed as you made phone connection.

Those were much better days than the corrpupt socialist shit hole into which this country has devolved

Sean7k's picture

Quadriple, wait, hope you never meet me anywhere and make the mistake of saying you work for the FED. You will not enjoy my response and it won't be verbal.

russki standart's picture

Lets make it a chorus, Fed FUCK YOU!