printDemocrats often counter the Republicans’ inchoate criticism of Obamanomics with the claim that Barack Obama has juiced the stock market like no other president.
Well of course he has. The consequence of Ben Bernanke’s non-stop monetary stimulus is a rise in prices, stocks included. Homes too.
But an increase in the price of an item is not the same as an appreciation in its value.
Promiscuous printing (inflation) decreases the purchasing power of each monetary unit (the dollar). As Peter Schiff pointed out, after the latest bout of quantitative easing—and before other foreign bankers were nudged to print in unison—“the Greenback was down 2.2% against the euro, 1.6% against the Australian Dollar, and 1.1% against the Canadian Dollar. A week after the Fed’s move, the Mexican Peso had appreciated 2.7% against the US dollar.”
If you don’t already know it, QE2 saw the Fed purchase Treasury securities, which “resulted in a cumulative threefold increase in the monetary base.” In “Operation Twist,” Bernanke, one twisted brother, exchanged short-term for long-term Treasuries.
That move, warned Schiff, “exposed US taxpayers and holders of dollar-based assets to the dangers of shortening the maturity on $16 trillion of outstanding government debt. Such a repositioning exposes the Treasury to much faster and more painful consequences if interest rates rise. Still, the set of policies announced yesterday will do so much more damage than ‘Operation Twist,’ they should be dubbed ‘Operation Screw.’ Because make no mistake, anyone holding US dollars, Treasury bonds, or living on a fixed income will have their purchasing power stolen by these actions.”
QE3, or “Operation Screw,” “focused directly at the housing market through purchases of mortgage backed securities.” Its outline: “buy hundreds of billions of home mortgages annually in order to push down mortgage rates and push up home prices.”
The upshot of the Fed’s confetti of funny-money?
…rather than building an economy on increased productivity, production, and wealth accumulation, he is trying to build one on confidence, increased leverage, and rising asset prices. In other words, the Fed prefers the illusion of growth to the restructuring needed to allow for real growth.
MORE.