federal reserve creates bubbles

federal reserve creates bubbles

federal reserve creates bubbles

I like this from the S&A Digest!

Ben Bernanke saw his shadow yesterday… 

The market expected him to start tapering the Federal Reserve's $85 billion in monthly bond purchases. But the Fed chairman announced yesterday he would continue easing… 

We're not surprised. A central banker's job is to print money. He causes inflation… He blows up bubbles. 

When those bubbles pop, they print more money… It's a vicious cycle. 

It's like Groundhog Day… Bernanke takes the podium. He's scared by what's happening in the economy, so he prints more money and scurries home. Only instead of a longer winter… we'll see already artificially high asset prices march higher.


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Dow Jones Transports Chart - Steady As She Goes Captain

The Leader of the market or the (DOW JONES TRANSPORTS) chart is showing that since March of this year 2013 it has been in a larger upwards channel. Interestingly enough we have been bouncing off that line over the last few days however we did not breach that line, and that is telling us that the market still has some sort of strength even though there has been rumors of the fed talking about culling of the quantitative easing and liquidity pumping up of the markets.

It is obvious to me that there are head winds for the markets over the next few weeks, but that does not mean a thing as technically we have not breached the risisng support line, so until that happens there is no need to panic.

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The Slow Bleeding Continues

The Current Fed's monetary programs have inflated the excess reserves of the major banks by roughly 170% during the same period of time. The increases in excess reserves, which the banks can borrow for effectively zero, have been funneled directly into risky assets in order to create returns. This is why there is such a high correlation, roughly 85%, between the increase in the Fed's balance sheet and the return of the stock market.

Unfortunately, while Wall Street benefits greatly from repeated Federal Reserve interventions - Main Street has not. Over the past few years as asset prices have surged higher - consumer confidence has remained mired at levels historically associated with recessions. This is reflective of weak growth in personal consumption expenditures which is primarily a function of weak income growth.

Eventually this will have catastrophic consequences, and we are already starting to see the warning signs. 

slow bleeding continues

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