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Ben Bernanke has no sure fire policy solution for economic stagnation. QE2, the $1 trillion quantitative easing expected, hoped for, prayed for, gossiped about, will only pour money into an economy that has no use for it. There is already $1.8 trillion cash on corporate balance sheets, $2 trillion cash in money market mutual funds and over $1 trillion reserves in commercial banks– a total of $4.8 trillion unused cash sitting silent. Creating no jobs, no consumer purchases.
The upshot will only drive down the dollar and drive up the price of gold, silver, platinum and other commodities. Thank David Rosenberg, the best informed, clearest thinker on Wall Street (Gluskin Sheff) for that strong sure view. Anyway, you missed the first 3% ride in commodities as the market began discounting QE2. last week.
QE2 will have a boomerang effect on the middle class. It will raise the price of wheat, sugar, coffee, poultry, beef, pork, raising their cost of living, reducing their disposable income. Just the opposite that Bernanke intends. Horrors!
No surprise. Students of the Fed like the reputable daily commentator Rosenberg (formerly of Merrill Lynch) have been monitoring how the Fed chairman has been dreadfully wrong in his prescriptions for the economy since 2007. (see below step-by-step mistakes in policy). Therefore, the odds are good the Fed will not be able to find the formula out of stagnation and lower stock prices.
This is a market completely based on a wing and a prayer; wishful thinking that another $1 trillion or so in Quantitative Easing after Nov. 3 will make common stocks go up, create jobs, and ignite economic growth.
You can ride stocks until the election and then sell them short, George Soros, the wiliest trader in the business, is advising privately. Sell them short, because it is unlikely the Fed’s QE2 implementation will do anything more than reduce the cost of borrowing money to buy a house or a car.
Rosenberg backs Soros, calling the current rally “a complete money illusion–the Dow, S&P 500 and Nasdaq are all being priced in ever-devalued US dollars.”
You want to rate Bernanke?
Here goes;
In April, 2007 he predicted that the subprime disaster would not spread throughout the housing market. He was devlishly wrong.
August 7,2007; The Fed chairman was concerned about getting inflation to moderate. He should have been concerned about deflation, deleveraging and deficits . Got the downside risk to the US dead wrong.
In 2009 Bernanke predicted a sustained growth rate of 3.5-4.8% real GDP growth for 2011, and unemployment of 7.7-8.5%.
No wonder there are regional Fed chieftans who are doubtng the wisdom of QE2. Driving down the yield on 10 year treasuries to 2% from 2.40% ain’t got no magic elixir.
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