The talk for the previous month or so has centered around how much the Fed was going to taper its securities purchases, i.e., decrease its money printing from the current level of nearly $3 billion per day. After all, we have heard through the media how great the economy is doing (regular folks tell a different story) and two of the three major indexes hit an all-time high Wednesday.
But, Ben Bernanke and the Fed decided that the economy was too fragile to handle any loss of support. What’s wrong with this picture? Markets at all-time highs and the economy is weak? So, who’s right, Wall Street cheerleaders or Bernanke?
Bernanke is right. Although many, myself included, believe his policies are all wrong, he does see through the hype and realizes that the economy is still in very poor shape. The questions are: 1) How long can he continue with extreme measures without doing more harm than good, and 2) Why is he convinced that this is the correct policy when it seems that the problems he is trying to solve — weak employment and GDP growth — are not responding.
Recent data show that 95 percent of the wealth created since the financial crisis has gone to the wealthiest 1 percent. The top 400 billionaires in the country have accumulated nearly $1 billion each. At the same time, labor force participation is at a 35-year low, and GDP “growth” stinks. Thanks, Uncle Ben. The wealth doesn’t seem to be trickling down.
The question remains as to whether the wealth is real. If everyone sells their stocks, prices can plummet fast. That is what economists call a bubble, and many, including myself, think we are deep in bubble territory.
So, while the Fed has been able to put lipstick on a pig, the pig (the U.S. economy) may be uglier than ever when it is eventually forced to remove this artificial support. In the meantime, the wealthy will enjoy some fine Champagne while the middle class claws out a living.