Tuesday, May 31, 2011

The Federal Reserve and Mission Creep

Here is a video of Ben Bernake talking about the Fed's impact on the stock market.

Here is a video interview between James Turk and Jim Grant that discusses, among other things, the mission creep by the US Federal Reserve, in which the Fed has taken upon itself the additional mandate of levitating the price of equities in the US stock market.

Thanks for propping up stock prices Ben , but we the people never asked you to do that. You have now managed, to some degree, to decouple the stock market from the health of the underlying economy.

High stock prices, like inflation, are symptoms of a healthy economy -- stock prices and inflation are not causes of a healthy economy. When you use quantitative easing to levitate stock prices and to try to induce, as you said on 60 Minutes, a 2% inflation rate, you will not get a healthy economy. Instead, you will get artificially high stock prices, more inflation than you bargained for (a year or two later), anemic GDP growth, persistent unemployment, and a growing number of people on food stamps. Which is precisely the situation we find ourselves in today.

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