Chart Of The Day


It’s been my longstanding opinion that the Federal Reserve is largely powerless in this kind of environment (balance sheet recession).  Over the last few weeks there has been an endless drumbeat for increased Fed action and more intervention.  As we all know, James Bullard responded with a call for more quantitative easing.  Mr. Bernanke was glad to fill the Fed trough yesterday as he initiated QE lite and certainly implied that the Fed would move to initiate a more aggressive form of QE in the future.  But the market is not responding well at all.  Pundits are blaming today’s action on overseas markets and several other moving parts, but I just have to wonder if the market hasn’t realized that the Emperor has no clothes – the Fed is powerless.

Monetary policy has run into a wall.  Fiscal policy has also hit a wall.  The private sector is swimming without a life vest now.  How will the markets come to grips with an environment in which government is largely powerless?  If the 80% rally in equities during a time of unprecedented government intervention is any evidence then I think it’s safe to say that equities might be particularly dangerous during a time when government is moving to the sidelines….

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