Fed head Ben Bernanke will go down in history as the worst Fed chairman ever, if justice is done.
He has embarked on a monetary policy of Zimbabwean dimensions. No Fed Chairman has pumped so much money into the “economy” in history. He tripled the size of the Fed balance sheet when nobody else had even added more than a few tens of percent.
I put economy in quotes because his massive easing has yet to make it into the economy. Instead, virtually all of the easing has gone to buy the massive budget deficits of the federal government, not onto Main Street.
So let me get this straight.
The Fed creates reserves by buying federal government treasury securities from big banks who buy them from the Treasury and sell them to the Fed (couldn’t we cut out a step? Oh, I forgot. The Fed is owned by those big banks so the Fed needs to show them some love!). The Fed then pays the banks to deposit the money back with the Fed. The Fed then is currently buying $85 billion a month of treasuries and mortgage backed securities from the banks.
This is a total circle jerk that creates massive profits for the banks, finances the government deficit, but does nothing for the citizens of the US.
In addition, this massive easing has led to massive bubbles around the world as the liquidity seeks a good return.
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I don’t think that the US stock market is overvalued but the current level of stocks is due mainly to Fed money pumping rather than a robust economy. The US stock market will likely drop a minimum of 30% when the Fed stops easing.
You see, the Fed head is creating unbelievable distortions in the global economy. Those distortions must be corrected.
The best outcome is that we and the rest of the world muddle through. But this means that people must suffer reduced wealth to pay for the sins of Bernanke.
The worst outcome is that we have a financial crisis that dwarfs 2008. Inflation turns to hyperinflation. Riots break out around the world.
We must stop showing respect to the chairman and the other Fed Governors. This will not end well.