Monday, February 11, 2013

Bernanke's Manipulated Economy: The Numbers

Ed Yardeni has the details:
Fed Chairman Ben Bernanke on numerous occasions explicitly stated that his ultra-easy monetary policies were aimed at boosting stock prices, resulting in a positive wealth effect on consumer spending. Stock and real estate prices are rising amid some concerns that the Fed is doing it again, i.e., pumping air into asset bubbles.

The market capitalization of the Wilshire 5000 is up $9.2 trillion since March 9, 2009, to $16.0 trillion on Friday. The Fed’s flow of funds data show that the value of all stocks in the US has increased by $12 trillion to $26 trillion from Q1-2009 through Q3-2012. The value of stocks directly held by individuals is up $4.7 trillion to $9.8 trillion over this period. The values of equity mutual funds and equity ETFs are up $2.3 trillion and $634.7 billion, respectively, over this period.

Owners’ equity in household real estate jumped 19.6% by $1.3 trillion to $7.7 trillion during the three quarters through Q3-2012! There’s more to come given that the median existing home price rose 10.9% y/y during December, the best pace since January 2006.
Greenspan was able to get away with this kind of bubble pumping without major price inflation. I don't think Bernanke is going to be as lucky. Regulations are slowing increases in productivity, foreign countries are less interested in holding dollars and the desire to hold cash balances in the US appears to be falling, all this suggests that price in the not too distant future start to really climbing. What's Bernanke going to do then, stop printing and allow interest rates to soar? He will allow rates to climb some, but not enough, which will mean accelerating price inflation as the most likely scenario.

1 comment:

  1. We can't be too far away from this precipice if the housing market is "improving" now.