With complete disadain for the Fed’s original purpose and outside the boundary of its legally permitted asset purchase parameters, Helicopter Ben Bernanke set revolutionary policy direction at yesterday’s meeting. Forget the Bernanke Put. We now have the Bernanke Push and Pull. For now, the Fed has decided its “full employment” mandate bestows upon this institution unlimited debt monetization and equity price inflation powers.
That’s right, the Fed can PULL stocks out of a tailspin because of the potential negative impact a correction can have on economic and employment levels. That was the old put. But now the Fed has decided that it cash PUSH stocks and bonds higher in order to stimulate in a lousy recovery. Now, financial asset prices are levers to be pushed and pulled to help the Fed “manage” the economy on a monthly basis. This policy even opens the Fed to purchase equities directly in the name of its employment mandate.
This institution which missed the tech bubble, the debt bubble, the housing bubble, the systemeic risk bubble, and the nature of the current recovery has the wisdom and skill to manipulate stock and bond prices as far as the eye can see in order to goose employment and economic activity to some unknown level without creating inflation, excess debt creation, or asset bubble concerns. Give me a break. Few institutions have been worse at seeing the systemic risk in overleverage and the necessary results of a complete delivering of the financial system.
The Fed has yet to truly acknowledge the problem of excess debt in the economy as well as the nature of the solutions to structural balance sheet problems. This is proven in their attempt to reflate the economy by pumping reserves into large financial institutions through bond buying programs. If the Fed wants to stimulate economic policy, it should really just do what Helicopter Ben suggests: rain money on the working class. Buying bonds really only helps providers of capital and not providers of labor.
How many blue collar workers toasted the Fed last night at the local bars and pubs. How many unions issued press releases thanking the Fed for such wonderful job-creating support. How many Fortune 500 companies ramped up hiring plans today because of a pop in the Dow?
I am pretty sure I know how a free market economy and financial market should work. People make free decisions regarding the procurement of goods and services. These transactions create economic activity. Financial asset prices then reflect that level and composition of economic activity. But, now it seems the Fed has decided it’s the other way around. They know what the level of economic activity should be. They model the transactions and production necessary to create that activity. And then they manipulate real financial asset prices in an attempt to reach that level of GDP.
Wow. I can only say wow.
Who the f#@k do these guys think they are? Who gave them the power to set asset prices to create GDP? How can they even know the “right” level of output or employment? For all I have seen in my 30 years of professional investing is a group of mostly academics get just about everything wrong since the tech bubble. Open ended financial asset price manipulation, with more to come if things don’t improve?
God help us. Unwinds and exits are a bitch.