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Bernanke Confirms That The Key Goal Of The Fed, And QE2, Is To Boost Stock Prices
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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Bernanke is right about one thing - money printing will boost equity markets. Look at the history of any country under hyperinflation. The Zimbabwe stock market took off like a rocket during its hyperinflation. So did Weimar Germany's.
Both economies absolutely collapsed at the same time, as ours is.
The premise that higher stock prices leads to a virtuous cycle is absolutely false. But I bet Bernanke already knows this. His goal is not to stoke the economy, but to transfer wealth.
The end game is near for the US economy. Protect yourselves.
Although this is true, I'm under the impression (ie not verified) the stock market in Zimbabwe didn't quite kept up with inflation. I think it might have been a couple of zeroes behind at any given time. However, the chart is still impressive if viewed in Zim dollars - depending on which one you choose (they had several versions). See further...here.
Platinum flash crash.
They can't stop it: they have to create inflation that's higher than the previous rate of inflation. This is called hyperdeflation.
The Pump and Dump. Right before a stock crashes, there's usually an effort to churn insiders and friends out of the stock and replace them with cold-called, dumb money. This stock market-Fed relationship reminds me of a Boiler Room operation, except you only need one phone, to the Fed.
Banker are taking bonuses based on the NEW FASB accounting rules, whereas they would have no bonuses under the old FASB rules. Insiders are selling 400-1.
You think this is the last loot and burn or is the Fed going to let the air out of our currency instead? Or is that the same thing....in the end.
notice how all those top stocks on the seller chart are all in 401k funds that are chosen for the masses to invest in??
pump it up, stick it to the 401k plans.. pull the plug
"In the most extreme case, very low inflation can morph into deflation (falling prices and wages), which can contribute to long periods of economic stagnation."
The line that killed Keynesianism.
http://www.guardian.co.uk/business/2006/apr/25/Zimbabwenews.internationa...
As Zimbawe's economy collapses, a tiny few make huge profitsAt one end of the stock exchange a man writes numbers on a whiteboard with a blue marker; at the other brokers tap sums into large calculators. Shares are bought and sold in crisp, verbal transactions; the deals noted on ledgers filled with carbon paper. In the corner a man with a laptop, the only computer in the room, keeps a record of the trading.
It resembles a scene from another era, but this is one of the world's best-performing stock markets. In January alone it doubled in value and the bull run is set to continue. Welcome to the surreal world of Zimbabwean economics.
Inside this exchange, on the fourth floor of one of the less dilapidated buildings on Nkwame Nkrumah Avenue, serious profits are being made while outside, businesses are collapsing, driving millions of people into penury.
Zimbabwe has the fastest shrinking economy outside a war zone, with unemployment pushing 80% and inflation a rampant 913%. But amid the meltdown a small minority - some legitimate investors, others crooks - is thriving. "Where some see crisis others see opportunity," said Jonathan Waters, an economist and commentator.
The winners in today's Zimbabwe are an eclectic group of share traders, currency dealers, estate agents, small-time entrepreneurs and cronies of Robert Mugabe's government, which is widely blamed for ruining what was once of Africa's most developed economies.
I'd say, coming soon to a theatre near you but I'm afraid the movie has already started.
Greenspan said that?
I say he's right, a rising stockmarket indicates falling credit spreads over government bonds. This is better for your average Joe than a bubble in governments I think.
Alas though, without a true standard of measure of value there can be no stability, only ever more violent gyrations in financial markets.
Dear Ben,
Coinage Act of 1792. It's the law. Still.
And for your last meal, what can we get you?
Last? Come on Chindit13! There is a reason for places like the ADX at Florence, CO to exist post devolution. Put Ben in the deepest, darkest hole there is and toss his baloney sandwich in through the trap. Unless he is found suitable to work the clean up detail (aka The Beastie Boys) at Hanford, Love Canal or other such place.
BTW, looking for that next submission of yours as you always provide great, thought provoking reading. A true trend setter of the absurdly dynamic community. Best-
Boy I'm like so wishing I had a PhD in econ so I could understand this simple relationship...
Higher stock prices = increased confidence = increased spending, and increased spending is good for the economy.
Yeah. Right. I can follow the logic--I just can't make myself BELIEVE any of it.
Echoing another poster: "One last Christmas..."
For fucks sake man, stop using the term QE 2.0
QE NEVER STOPPED! Not only are they using 3rd parties. Whats the difference between an anonymous billionaire and a FED purchase? NOT A DAMN THING. But they are making the institutions who they bought their worthless MBS from purchase as well (who otherwise would be insolvent/bankrupt).
QE NEVER STOPPED AND KNOCK KNOCK ASSHOLES, STOCKS ARE ALREADY UP.
ha. true
Silver, 25 and a quarter. Strap in people......
Aw yes the magic futures, were 90% of the time they rise as America sleeps, they do not disappoint. Buy the close sell the open best strategy for some easy money. Bad data bad employment make no difference to the stock market, they have the magic futures, gap up gap up gap up gap up.
And ....
http://www.bloomberg.com/apps/quote?ticker=DXY:IND
wondering what that will do to the price of my morning coffee
Never underestimate the replacement power of equities within an inflationary spiral. Heard that anywhere before?
There is now no one left to short/sell/fade the FED's Z-I-M-B-A-B-W-E rally. They have all been carried out on stretchers. Just get long the ES and live the thrill of having the largest PONZI scheme in history funding your margin account.
"Stocks have reached what appears to be a permanently high plateau." (Irwin Fisher 1929)
Get long or be wrong.
dollar is tanking, fuck - gambling FX is one thing and losing on regular deposits is another. you motherfucker Bernanke.
I mean I never complained, sorry for the rant, but right now is quite different.I have a lot of cash in the business account and quite substantial amount in savings. It took me years to accumulate. I don't care what others say but the FOMC statement was quite shocking to me personally.I never expected them to hand out 600B over like few months!Fuck, instead of sleeping today, I am thinking about closing these accounts and putting the money in silver and taking delivery from Tulving as soon as next day. It's fucking 3.30 am I am having a sleepless night and a pain in my chest. If I remove the money from the business - is like I just close the business. That's because I am not levered with loans, just cash.I don't want to risk my working capital to dollar crash, because I am not a very rich person.Until now I was hopeful they don't screw up big time, but I was proven wrong today.Business is lousy and much of it is exposed to currency risk anyway(I import some specialty components for the NDT and medical industry from Germany, so if the dollar crashes I am out anyway). And if I buy silver - I am gonna be stuck and it really scares me. But I believe it is more important to preserve the capital than to risk it because of an idiot in charge. I always follow my own judgment and I tend to know what to do at times like this, but right now I am fucking scared shitless because there is no way out of it longterm. It looks like I am gonna close my business. Not next week, not in few days, tomorrow. My margin is too small to risk 2% loses on a dollar PER DIEM. But what's worse, I'll have to cancel my health plan, because without the income I won't be able to pay for it. I dunno, but these fuckers SHOULD BE REMOVED from their offices. I am dead serious. This is not funny. This guy Obama should be removed along with Geithner and this motherfucker Bernanke. This election was not enough IHMO. I don't understand why they are allowed to walk the streets, motherfuckers.I mean c'mon how can we allow people to talk about debasing our money! Jeez, I am gonna have a hart attack.[end of rant]
Sell everything. Put 25% physical gold, 50% physical silver, and 25% cash. Rent a cheap place with lots of storage and start stockpiling guns, ammo, food, water, seeds, tools and all other preps. Get some popcorn and watch the show.........
Better still. Exit the United States.
Now multiply this problem across *all* businesses. Bernanke thinks he is helping the economy, but he is impoverishing cash-rich businesses, and destroying their ability to invest.
If you had to pick a way to destroy an economy, this would be an excellent tactic.
Close em as soon as possible and buy physical while its still available,Gold and Silver shooting today,only gonna get worse.These are International currencies,$ will depreciate everday,cut your losses on your hard work,forget whats gone before and act.
The con is up. Gov'ts around the world are refusing to accept dollars. Saudi's gold for oil is why their gold reserves went up by 200%. It wasn't an accounting adjustment. Iran's gold reserves also reflect the same situation, gold for oil.
Germany 1922 - gold 550 marks per ounce
Germany 1924 - 87,000,000,000,000 per ounce
The new $100 bill which has been delayed for 2 years will finally be circulated next spring with the addition of only one letter. "In God We Trust will be modified to include the letter "L" to become "In GoLd We Trust".
Bernanke is just Greenspan 2.0 - rob from the poor and give to the rich. No cryptic language this time from the former Chairman (verbatim from the transcript):
"I don't know where the stock market is going, but I will say this, that if it continues higher, this will do more to stimulate the economy than anything we've been talking about today or anything anybody else was talking about."
Alan Greenspan
on Meet The Press - 8/1/10
I remain both struck and dumbfounded by this quote. And here I thought the stock market was an economic output and not an input. Silly me!
How long before we see a large fund lawsuit, or a class action suit against the Federal Reserve for market-manipulation? (which by the way, is illegal).
Seriously, I would love to see someone, no matter how small, sue the Federal Reserve on extremely basic legal-grounds.
Manipulating the equities market is not only illegal, but it isn't part of their charter. (Which calls for dollar stability, btw).
Proving damages due to the Federal Reserve's market manipulation -- particularly for those who have lost money on indexes -- is not difficult at all. And their admission that they do in fact, manipulate markets is already a confession to criminal activity. It also seems to me that in this particular case, the Federal Reserve's status as a private corporation actually exposes them (to lawsuits) rather than protects them.
Are there any lawyers in the house?
Wait till the poor people show up at Wally World on Nov 30th at 11PM and their govt provided gift card only buys half as much food.
It's extend and pretend. The elites are just buying time. When TSHTF it will be so quick people will be deer in the headlights wondering what just happened.
popo, who cares about the lawsuit? When will people riot in the streets like in Iceland? You know, 10% of the population? Do we need to lose everything to go after DC? I mean if I go to DC, and some other folks go - we will make a dozen. They'll just laugh at us. Why is it so hard to get to people - I mean even my wife - I had a difficult conversation with my own wife, because she doesn't understand it. I told her today - look - it's over, do you understand? No, she doesn't. She was even kind of angry with me, because I dared to force her first time to a conversation about our future. She just takes everything as a given. I told her today - lady - this is over and she just left the room! If all the people are like my wife, then we seriously deserve our faith. The people of this country do not understand inflation, they don't even understand forex, except the losing money part of it, because folks tend to understand J6P lose money on Wall Street. With the 600B QE2 I am out of business.Right away, like next week if I dare to risk buying another batch of stuff. No one will buy anything from me if I dare to raise prices. I was surviving only because I had a small margin and the dollar was kind. When they take it away from me the bigger players will get the business. I just can't compete with all these forces. I could thrive with a steady exchange rate but let's be realistic, how much longer? A week? The thing that pisses me rigth now is obviously these morrons don't get it. They don't understand. Obama's policy is to make everything expensive so you get expensive housing, expensive rent, expensive gas, and soon enough you are gonna have expensive food and expensive stuff from China. Interestingly people are so stupid, they don't understand that stimulus = expensive stuff = less money for all of us = less jobs. Friedman was all over it, but NY Times prints Krugman who is another retarded idiot. Not only we elected an idiot for a president - we are allowing the idiot to screw our economy with crooks and wrongful policies. We are being ruled by idiots, liars and thieves and we don't protest even when they steal in front of us and lie to us throu TV like we were retarded or what! This QE2 will kill us good. There is nothing good about this QE2. Daylight robbery it is I say.
This is the exact thing Mises wrote about in Theory of Money and Credit. When the central bank prints money, inflation happens first in the things that the people who get the money first buy. In this case, Bernanke's hoping it's stocks. This causes wealth to be redistributed toward those who are first in line for the new cash, but it doesn't make society any richer. It makes us poorer, because those of us last in line (i.e. everyone else) find that prices have risen across the board by the time our incomes go up.
Or is it the only goal?
Notice how Ben has rewritten the Fed's mandate, from "stable prices" (as adopted by Congress) to "low, stable inflation" (as written by Ben, informally backed by the FOMC, and formally backed by nobody).
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Increasing stock prices for companies in web design Sarasota would definitely help shareholders and the company as a whole. With more investment capital, more hiring could take place.
I can't wait to see what the response will be from middle and lower class America now that The Fed admits in very easy to understand language that they are taking the people's money and giving it to the investment banks so they can give it to the multi-national corporations to elevate their stock prices.
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