Friday, June 7, 2013

The Back Asswards World Of Ben Bernanke

     When the employment data for the month of May is announced this morning, the market will react in one of two ways. But its reaction may surprise you based on the results of the data. If the employment numbers are perceived as good, the market may tank and if they are bad it may rise. This is the result of Ben Bernanke, no doubt at the direction of the President, printing 85 billion dollars a month and buying government bonds to keep the rates historically low in order to drive money into stocks. This artificial buoying of the market is called Quantitative Easing. The Fed said this will continue until the economy shows signs of strength, hence if the employment data is good, it will make it more likely that the Fed will pull the needle out of the market's arm and the days of easy money will end.
     The stock market has more than doubled since its low in March of 2009, while the economy's improvement has been negligible. President Obama's impotent economy has produced economic conditions which rival the Great Depression and have certainly not been seen since. The President became CEO of the United States at a time, to be sure, was challenging, but no where near as economically difficult as when Ronald Reagan took the reigns of the same office some 32 years ago. At this juncture in the Reagan presidency, the economy was growing at 6 to 7 percent a quarter and it was adding half a million jobs per month. With an Obama Gross Domestic Product growth of barely 2 percent and less than a hundred thousand jobs being created a month on average, we would have been better off as a country having no president the last four and a half years and placing Congress on an extended holiday.
     But I digress, a return to the financially inverted world of Ben Bernanke. In the back asswards world of Ben Bernanke, good news is bad and bad news is good. It is a world in which easy money produced by the Federal Reserve is bad during Republicant administrations, but is an economic savior under a Democrat one. Chairman Bernanke knows that this endless printing of money and the buying of government bonds must have an end and has even made reference to the "unwinding" of his bond-buying binge. But unwinding trillions of dollars in monetary easing is like trying to transform popcorn back into a kernel.
     Mr. Bernanke thinks that the negative fiscal results that are bound to happen as a result of the Federal Reserve pulling the money out of the market place that it has been pumping into it the last three years, will be absorbed by a booming economy. The chicken and the egg scenario that the hapless chairman does not understand is that it is his monetary easing, along with the Leftist legislative agenda of the Obama administration, which has not only kept the economy from booming, but from growing at anything close to the ordinary rate of 3 percent a quarter. The academic theory behind Mr. Bernanke's actions is that if bond rates are kept low, investors will put their money to work in the stock market, sending it higher. As the market rises, it will give the illusion of an improving economy and create a self-fulfilling prophecy as businesses hire more employees and people feel good about spending money. This is the kind of blathering economic theory that is the result of having an academic run the Fed instead of someone who has actually worked in the real economy and understands it. This is the back asswards world of Ben Bernanke in which we now live, hold on tight, it is going to be a bumpy ride.    

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