Fed Blinks as Housing, CLOs Slump

Ben Bernanke noted in 2010 that “higher equity prices will boost consumer wealth and help increase confidence, which can spur spending.” The Fed's fixation with perception rather than data is illustrated by the way in which former Fed Chairs Bernanke and Yellen deliberate chose to inflate the value of financial and real assets to "stimulate" the economy. The WSJ’s Nick Timiraos reported last week:

“Former Fed Chairman Ben Bernanke often argued that it was the maturity and risk-profile of the Fed’s holdings, not the overall size of its reserves or securities portfolio, that determined how much it stimulated markets and the economy.”

The Fed’s dual mandate from Congress includes full employment and price stability. But to look at recent policy suggests members of the FOMC cannot read federal statute or do simple sums. Causing asset prices to soar by double digit rates is not price stability – it is inflation, plain and simple. Please, Chairman Bernanke, do show us where it says in the Federal Reserve Act that the FOMC is allowed to employ asset price inflation as a policy choice.

In the Orwellian newspeak of the Federal Reserve System, inflating the value of stocks, bonds and real estate to absurd levels is a form of economic “stimulus.” Never mind that this vast act of asset price inflation did not help the majority of Americans. Indeed, the biggest impact of the Bernanke/Yellen asset inflation seems to be preventing a whole generation of younger Americans from buying a new home.

Link here.