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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