Bernanke’s Plan for the Middle Class Fattening Wall Street, Starving Main Street
By: Mike Whitney
Apr 25, 2012
Do you want to understand what the Fed is doing, but don’t have time to wade through volumes of tedious economics writing?
Well, now the pros at dshort.com have made all that possible. They’ve reduced 4 years of monetary policy into one chart that illustrates exactly what the Fed is up-to and who benefits from the policy.
The chart shows how the Fed’s lending facilities, zero interest rates and $700 billion bank bailout (TARP) helped to put a bottom under a market that had fallen off a cliff. Then came the first round of Quantitative Easing (QE1) during which the Fed purchased $1.25 trillion in mortgage-backed securities (MBS), $200 billion in US Treasuries and $150 billion in agency debt (Fannie and Freddie) This massive infusion of liquidity triggered a sharp rebound in equities starting on March 9, 2009. It also transformed the Central Bank’s balance sheet into the largest waste treatment facility on planet earth.
By May 2010, the Fed’s adrenalin rush began to wear off and stocks began to sag once again. That led to a second round of QE, a $600 billion mainline injection which sent equities soaring until midyear 2011. When the markets tailed off in May, Fed chairman Bernanke initiated a third round of QE (Operation Twist) which buoyed stocks with another $400 billion in liquidity. Operation Twist is set to end in mid-June, after which Bernanke will undoubtedly find some excuse to launch yet another round of bond buying to keep stock prices artificially high. Many of the big banks and bond funds have already started buying up distressed MBS in anticipation of QE3. It’s not likely that Bernanke will disappoint them.
So, there you have it; 4 years of policy in one picture.