Federal Reserve System and Stock Market

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Why Bernanke will answer investors' prayers

Baltimore, Maryland

Q...E...

Waitin' for ya

Prayin' for ya

Not much follow through in the stock market yesterday. The Dow was up ...but only 46 points.

Meanwhile, gold fell $46.

We long for clarity. For a day of reckoning. But it seems far in the future. Yesterday, the world waited for Mr. Bernanke to reveal his intentions. Instead, he said he was keeping his options open.

That was good enough to keep some steam in the stock market. But not enough to keep gold going up.

Both gold bugs and stock market bulls are counting on the Fed to come through. And it probably will.

We saw yesterday how the 1% got to be so rich. The feds - aided and abetted by consumers and the financial industry - bubbled up the amount of cash and credit in the US by 50 times in the last 50 years.

"That explosion of credit changed the world," writes Richard Duncan in his new book, "The New Depression."

Yep...for one thing it made the rich richer. That money didn't go to wage earners. It went into stocks and bonds - the assets owned by the 1%.

The stock market began its epic march up the mountain in 1982. Since then, it's gone up 13 times (as measured by the Dow).

US GDP is up about 13 times too.

But much of the "growth" in stocks and GDP in this period was phony. The tape measure, used to track growth, was calibrated in dollars. And the dollars - stretched by the feds -- lied.

Just look at what has happened in the last ten years. From its low in the early 2000s, stocks are up about 50%. Investors might think they are ahead of the game.

But measure that increase in terms of gold...and the gains disappear. Instead, stocks are DOWN 16%. In terms of oil, stocks are down even more - 43%.

And now the feds tell us the economy is in 'recovery.' Yes, they admit, it's not a great recovery. But the economy is growing. And if we wait long enough everything will be put right.

Oh yeah? At this rate the US will never reach full employment. Because, each month, more people are looking for work than finding it. Why? Because little of this 'growth' is real. It's just what you get when you put an extra $2 trillion of cash and credit into the system.

But investors don't seem to care whether the growth is real or not. Instead, they're waitin'...prayin'...hopin' for another round of MONEY! They want that old elixir...more cash and credit...that miracle gro' that the feds use to turn the economy green.

Oh yes, dear reader, we are five years into the Great Correction crisis...and once again, the world (and especially Barack Obama) turns its weary eyes to Dr. Bernanke.

"Touch us...heal us... Take away our pains. Lift us up to paradise."

Or, at least put us back in the White House!

And word on the street is that Ben Bernanke is getting ready.

"Fed considers more action..." says the Wall Street Journal.

"Stocks rise on hopes of more stimulus," reports the Financial Times.

But not all the Fed team is on the same page. Richard Fisher, of the Fed bank of Dallas, is clearly not: | "I believe that were we to go down the path to further accommodation at this juncture, we would not simply be pushing on a string but would be viewed as accomplice to the mischief that has become synonymous with Washington." |

Our guess is that Mr. Fisher will be left behind. If not now...later.

Matthew O'Brien, writing in The Atlantic, explains why.

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