Bernanke Blowing Bubbles Again

September 14, 2012

Yesterday, Fed Chairman Bernanke announced that the Fed would:


1.. Extend the Zero Interest Rate Policy (ZRIP) until mid 2015

2. Continue the $45 billion per month Twist program (to keep long-term interest rates low)

3. Start buying $40 billion per month of Mortgage Backed Securities until employment improves (does that mean in perpetuity?) He will even add more money if the labor market does not improve.

The market has been expecting this for more than a year. The surprise was that the amount to be purchased was open-ended. That is really kicking the can. Chairman Bernanke also revised his GDP growth number down to 1.7-2. from 1.9-2.4. He must be very nervous because he seems to make downward revisions after each meeting.

Where will all this money go? To the banks of course! They will be able to get damaged bonds off their books at a good price and then use the money to beef up their balance sheets by investing the money in stocks and bonds here and abroad. It may not do much for employment but it should be good for the markets, at least for a while. But sooner or later we will have to pay for it with a deeper recession or inflation.

What went up in price on the announcement? For example: Gold, Silver, Equities, and Oil. What went down? For example: Bond prices and the Dollar.

Oh, Paul Krugman, Nobel-Prize winning economist and professor, again, does not think The Fed is spending enough.