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"The Fed No Longer Even Denies that the Purpose of Its Latest Blast of Bond Purchases ... Is To Drive Up Wall Street"
The stated purpose of quantitative easing was to drive down interest rates on U.S. treasury bonds.
But as U.S. News and World Reported noted last month:
By
now, you've probably heard that the Fed is purchasing $600 billion in
treasuries in hopes that it will push interest rates even lower, spur
lending, and help jump-start the economy. Two years ago, the Fed set the
federal funds rate (the interest rate at which banks lend to each
other) to virtually zero, and this second round of quantitative
easing--commonly referred to as QE2--is one of the few tools it has left
to help boost economic growth. In spite of all this, a funny thing has
happened. Treasury yields have actually risen since the Fed's
announcement.
The following charts from Doug Short update this trend:
Of
course, rather than admit that the Fed is failing at driving down
rates, rising rates are now being heralded as a sign of success. As the
New York Times reported Monday:
The trouble
is [rates] they have risen since it was formally announced in November,
leaving many in the markets puzzled about the value of the Fed’s
bond-buying program.
***
But the biggest reason for
the rise in interest rates was probably that the economy was, at last,
growing faster. And that’s good news.
“Rates have risen
for the reasons we were hoping for: investors are more optimistic about
the recovery,” said Mr. Sack. “It is a good sign.”
Last
November, after it started to become apparent that rates were moving in
the wrong direction, Bernanke pulled a bait-and-switch, defending
quantitative easing on other grounds:
This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose
and long-term interest rates fell when investors began to anticipate
the most recent action. 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.
As former chief Merrill Lynch economist David Rosenberg writes today:
So
the Fed Chairman seems non-plussed that Treasury yields have shot up
and that the mortgage rates and car loan rates have done likewise, even
though he said this back in early November in his op-ed piece in the
Washington Post, regarding the need for lower long-term yields:
“For
example, lower mortgage rates will make housing more affordable and
allow more homeowners to refinance. Lower corporate bond rates will
encourage investment.”
But the Fed Chairman is at least getting
what he wants in the equity market. Recall what he said back then —
“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.”
So now the Fed has added a third mandate to its charter:
1. Full employment
2. Low and stable inflation
3. Higher equity valuation
The
real question we should be asking is why Ben didn’t add this third
policy objective back in 2007 and save us from a whole lot of pain over
the next 18 months?
And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.
Indeed, leading economic consulting firm Trim Tabs (25% of the top 50 hedge funds in the world use TrimTabs' research for market timing) wrote on Wednesday:
The
Federal Reserve’s quantitative easing programs have helped stock
market participants, financial institutions, and large companies but
have done little to address the structural problems of the economy,
according to TrimTabs Investment Research.“Quantitative easing
is supposed to produce stronger economic growth and lower unemployment,”
said Madeline Schnapp, Director of Macroeconomic Research at TrimTabs.
“While QE1 and QE2 have worked wonders on the stock market, their impact on GDP and jobs has been anemic at best.”
Similarly, Ambrose Evans-Pritchard wrote today:
The
Fed no longer even denies that the purpose of its latest blast of
bond purchases, or QE2, is to drive up Wall Street, perhaps because
it has so signally failed to achieve its other purpose of driving
down borrowing costs.
Unfortunately, a rising stock market doesn't help the average American as much as you might assume.
For example, Robert Shiller noted in 2001:
We
have examined the wealth effect with a cross-sectional time-series
data sets that are more comprehensive than any applied to the wealth
effect before and with a number of different econometric
specifications. The statistical results are variable depending on
econometric specification, and so any conclusion must be tentative. Nevertheless,
the evidence of a stock market wealth effect is weak; the common
presumption that there is strong evidence for the wealth effect is not
supported in our results. However, we do find strong evidence
that variations in housing market wealth have important effects upon
consumption. This evidence arises consistently using panels of U.S.
states and individual countries and is robust to differences in model
specification. The housing market appears to be more important than the
stock market in influencing consumption in developed countries.
I pointed out in March:
Even Alan Greenspan recently called
the recovery "extremely unbalanced," driven largely by high earners
benefiting from recovering stock markets and large corporations.***
As economics professor and former Secretary of Labor Robert Reich writes today in an outstanding piece:
Some
cheerleaders say rising stock prices make consumers feel wealthier
and therefore readier to spend. But to the extent most Americans have
any assets at all their net worth is mostly in their homes, and those
homes are still worth less than they were in 2007. The "wealth effect"
is relevant mainly to the richest 10 percent of Americans, most of
whose net worth is in stocks and bonds.
I noted in May:
As of 2007, the bottom 50% of the U.S. population owned only one-half of one percent of all stocks, bonds and mutual funds in the U.S. On the other hand, the top 1% owned owned 50.9%.
***
(Of course, the divergence between the wealthiest and the rest has only increased since 2007.)
And last month Professor G. William Domhoff updated his "Who Rules America" study, showing that the richest 10% own 98.5% of all financial securities, and that:
The
top 10% have 80% to 90% of stocks, bonds, trust funds, and business
equity, and over 75% of non-home real estate. Since financial wealth is
what counts as far as the control of income-producing assets, we can
say that just 10% of the people own the United States of America.
The bottom line is that quantitative easing is not really helping the
average American very much ... and is certainly not worth trillions of dollars.
- advertisements -
The majority of the increased consumer spending a rising stock market will create will be simply baby boomers choosing nicer assisted living facilities.
This materialistic generation can't handle anymore stuff except for maybe an ipad or the latest android phone.
Very inspiring. All the misplaced anger in the populace is nauseating.
"The Feds Last Stand" ... new Custer biography movie.
"Why Steal Less, when you can Steal More?"
Wall Steet Mantra, 2011
It’s called “painting the tape”.
Buying from & selling to your self creating ficticious transactions “doesn’t get it done Dude” as John Wayne said to Dean Martin in Rio Bravo.
The theme song in that movie was Deguelo “The Cut Throat Song” which is the Bernanke’s & Geithners theme song....no quarter.
http://www.youtube.com/watch?v=cJ5z1f7mIis&feature=related
The Feds entire purpose is to create hyperinflation,they don,t give a toss about anything else because they realise the debts are unpayable otherwise.
Unfortunately, the Fed has a fourth ammendment to its charter that everyone seems to miss. It goes like this...
The Fed hands the QE money to its Wall Street buddies. They throw this dosh out onto the markets because banks hate leaving the money idle in their vaults doing nothing. Greed and the Fractional Multiple are like that. Thus the WS banks invest frantically in overseas assets like foreign bonds,stocks, land, businesses etc in order to get out of a rapidly inflating, devaluing dollar. So we have a driven and fake stock market recovery.
These massive foreign inflows rapidly inflate the export-driven economies, pushing up their currencies dangerously. The only thing these economies can do to stabilize their own currencies is to buy US Treasuries to lower their currency's value -- This is how the Fed is exporting dollar inflation in order to further maximize and squeeze credit from the rest of the world. So, by intimate control of dollar inflation, the Fed can both generate more credit, whilst simultaneously inflating away her debt at the same time. I also believe that this is the Fed's MAIN strategy.
To further see it - here are a couple of easy to follow flowcharts I put up a while ago:
http://ragingdebate.com/economy/the-feds-real-strategy-1#c60003
http://ragingdebate.com/economy/the-effects-of-the-feds-qe-on-foreign-ec...
The Fed's corrupt loveliness just goes on and on....
"This Act establishes the most gigantic trust on Earth. When the President signs this bill, the invisible government by the Monetary Power will be legalized, the people may not know it immediately but the day of reckoning is only a few years removed.... The worst legislative crime of the ages is perpetrated by this banking bill."
"To cause high prices, all the Federal Reserve Board will do will be to lower the rediscount rate..., producing an expansion of credit and a rising stock market; then when ... business men are adjusted to these conditions, it can check ... prosperity in mid career by arbitrarily raising the rate of interest. It can cause the pendulum of a rising and falling market to swing gently back and forth by slight changes in the discount rate, or cause violent fluctuations by a greater rate variation and in either case it will possess inside information as to financial conditions and advance knowledge of the coming change, either up or down. This is the strangest, most dangerous advantage ever placed in the hands of a special privilege class by any Government that ever existed. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money. They know in advance when to create panics to their advantage, They also know when to stop panic. Inflation and deflation work equally well for them when they control finance."
"The financial system [...] has been turned over to the Federal Reserve Board. That board administers the finance system by authority of [...] a purely profiteering group. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money."[6]
Charles August Lindbergh
spot on, even decades later.
We're all going to be rich when the DOW is at 27 000 and a loaf of bread costs 77 usds.
A rising stock market helps bail out the pension funds.
It is all about delivering the perception to the average idiot that the game is not over. To keep those underwater continuing to pay their bills in the face of national bankruptcy. For those of us who know the Ponzi has reached the point of failure; we play along...
We all know when Wall Street's symbolism collapses the whole ponzi collapses. At some point the panicked crowd will ignore the "all is well" lie.
Dont Fight the FED! Use the dips to earn money to buy more PM's! or Ammo! or Extended Clips (a shout out to my crazies!)
So now Bernanke is claiming the sign of success for his QE program is RISING interest rates, even though it is supposed to LOWER them. Classic doublethink, Orwell would be proud.
it is psychotic
+
"Increased spending will lead to higher incomes"
war is peace
I'm starting to get the notion one can't spend their way to prosperity...yes I know, I've said some strange things but I've got a real gut feeling about this one ;-)
You probably think rain is wet, so who are you to judge?! :>D
"Common sense is not so common."
Voltaire ;-)
Hail to the thief !
QE2 is the FED attempt to ensure the survival of the PD's and the banking system; the FED exists to help banks, period.
Ok so here's my thoughts, The Fed has pumped Corn/commodity prices up. So it LOOKS GOOD ON PAPER. GDP looks good because corn@90%x2=HUGE OUTPUT GAINS! And now that we export much more of our oil, that too effects production (at $90 bbl) but also Balnce of Trade!
This whole "Experiment" by Academiatician Benbernank, is entirely scripted for reviews at A LATER DATE.
Syrinx Temple, 2112: The Benbernank was successful at increasing GDP. He was successful at increasing exports. The Deflation in houses was never reflected in The JPMorgue's balance sheet. The Inflation does not show up on our monitors, because we don't eat or drive to work, we stay here in the temple and relaxation waterfall sounds are interupted by that damn Lifeson trying to tune that warped Gibson ES 355.
(Beavis: Huh Huh, he said ES ).
But as far as we know, The Benbernanke kept the USA out of depression.
IT LOOKS GOOD ON PAPER, and that's about it. Thanks GW for putting it all in one place.
PS- Alex says the High Frequencies are all fucked up, HFAFU right, thanks.
I was at Publix today, Hellman's mayonaise is $4.59 a jar? WTF? Oh, yeah, Corn Oil. I looked around, Doritos, $3.99 a bag, when did this happen? Jeez, stopped at the gas station on the way home, I am shocked that $5.00 only puts 1 gallon + a half in the tank, how far am I gonna get on THAT?
let's not forget the savers got a big stick in their asses, and they get 0-1% on their savings. Bernanke don't give a shit about the people, as long as the stock markets go up. the big banks have to be capitalized, and they deserve all the taxpayers money. same is true from alan greenspan.
I still fail to see how a higher stock market can improve the economy besides the fact that the noted stocks can take on more debt with their stock as collateral to keep on trucking.
It doesn't do shit to the economy besides creating a multi trillion dollar smoke screen.
And companies that where "saved" only put on more debt and where able to put their loans that where ending these last years into loans for the next 5 to 10 years.
Not a single company really inovated, hired extra people... did anything.
People should start hitting the streets. It's the future of US people that is now sold as in passed time as in these last 2 years. And like lame ducks with clipped wings they just took it.
What does amaze me is that people keep on believing the economy is getting better because the stockmarket is up. Talk about a perfectly organized propaganda smokescreen.
SD, upcoming M&A would suck any sign of life out of The Recovery=Jobs lost, downsizing, The Benbernank is pointing the ship in the wrong direction.
The Felon is INTEREST CHARGED.
Youse the Force, Jersey Ben is just trying to get more profits onto the banks balance sheets. Hey, when did they stop reporting FULL YEAR results with Q4 JPM results? Another Hoaxing Device from The Death Star! Nice job, Turdy
http://www.xtranormal.com/watch/8266652/
based on all the information, the Fed is doing nothing in the bull market, and buying everything in the bear market. the sole purpose of the Fed is to pump up the market. fuck all anything else.
The whole idea is to screw the little guy, right? Then this story is not over yet: He usually buys high and sells low, so they are pumping this market up until the little guy can't take being left out anymore, and comes running back in with the 50% he has left from selling out in Feb 2009. He grabs the bag and gets left holding it, The Great QE2 Pump & Dump Caper. BRILLIANT!
I'm guessing this is the source of all the of all the vitriol here. All the dumb asses that sold out at the low point, then came late to the short party only to find the chips and salsa were all gone. So got the double-whammy. Then sat out the 90% rise since, or kept trying to short along the way.
Stuff it! Most here have already pulled the ripcord on their "Golden" parachutes -- we're sittin' back, munchin' popcorn, watching the robots in the market(s) fight! Until some serious changes are made, and those responsible take a perp walk, we ain't jumpin' back into the frying pan.
hmmm ... I doubt that. keep dreaming of what could have been.
"which can also spur spending"
yes americans are debt and consumer slaves....consume you fucking little bitch...consume
If anyone cared about the "individual" the muni market plummet would be a major story in the MSM. It is the very fact that "individuals" are the largest holders of muni debt that the Banksters and their servants at the Fed don't give a shit about that market. "Let them eat cake."
the mother of all mothers who had issues with his mother
+1000000000000
+1000000000000 in gold-backed points.
The best poster from the best poster.
+1000000000000
Stocks appear to be the hedge that saves your purchasing power as the kleptocrats defend themselves, and precious metals appear to be the hedge that the kleptocrats will be dethroned from power.
great comment...
yes, indeedy, another trillion dollar program funded by the middle classes designed to do nothing more than increase the wealth of the top 2%.
at some point, and it could be sooner than we think, the people are going to turn.
they are not quite as stupid as Ben assumes they are, or he needs them to be.
Yes they are. (I'm sorry say.) Oh, people will turn alright - when they get hungry - but due to their stupidity, they'll go after the wrong targets.
You're right ... this insanity has gone on almost two years now, and thanks to food stamps, an unemployment pay, no one is starving ... while 49% of the sheeple blame Bush, 49% blame Obama, 2% are walking away with the loot and the remainder read ZH.
That's such an obvious fallacy that it's hard to take your other arguments seriously.
The ultimate cost of buying $600b worth of government bonds is not equal to the first leg - it is equal to the purchase price minus the sell price.
(It might even come up positive, as it happened with TARP.)
I think it would be easy to argue that the money would have been better spent paying off peoples mortgages.As opposed to enriching the criminals responsible for this disaster.
I note you are on the side of the destroyers.....
You should reconsider....before it is too late.