After much anticipation and excitement, Federal Reserve Chairman Bernanke shared his thoughts following the recent FOMC meeting on Wednesday. In essence, there will be no QE3 at this time, but there will be an extension of Operation Twist.
Markets initially reacted positively to the announcement, with the Dow soaring over 100 points. However, shortly thereafter, it dipped more than 100 points, only to recover slightly, ultimately closing the day just 13 points shy of its starting position.
The following day, at the market’s opening, the DOW plummeted without recovering. By the end of trading, it had lost 250 points.
Jim Cramer attributed the decline to concerns regarding commodities. He stated, “Today was a day when many investors panicked over the possibility of insufficient end demand for everything made from commodities, not just the commodities themselves.”
Cramer could be correct, or he may not. At the Economic Prism, we don’t claim to fully understand the factors influencing the stock market. Nonetheless, the lack of QE3 likely dampened traders’ spirits.
Operation Twist certainly involves considerable market intervention. While it does not increase the money supply like quantitative easing, it manipulates and reshapes credit markets much like a blacksmith forges a wrought iron gate. Continue reading
“It is not good to have a rule of many.” – Homer
A New Greek Tragedy
A booming economy can create an exhilarating sense of hope. It inspires people to embrace possibilities that once seemed unattainable. For a time, a country’s brightest talents shine, its military seems invincible, and its governmental system appears unparalleled.
This perception can persist as long as the evidence supports it. Yet, unexpectedly, disaster may strike, causing the economy, military strength, and citizens’ pride to collapse in quick succession.
Take Athens, for example. Over 2,400 years ago, it lost its prominence. The Peloponnesian War concluded in 404 BC, reducing Athens from the most formidable city-state in Greece to ruins. The war marked the end of Greece’s golden age, with Athens’ prosperity and influence vanishing forever.
Even today, the rifts in the psyche of Athens’ citizens remain unhealed. Continue reading
Economies behave like ocean tides—constantly rising and falling. At times, a rising tide can lift all boats, even those helmed by the less industrious. Conversely, a falling tide can drag down even the hardest working individuals.
There are periods when simply showing up for work results in plentiful rewards, and other times when diligent effort seems to yield only setbacks. Regrettably, recent narratives largely point to an economy that offers minimal rewards coupled with numerous challenges. On Monday, the Fed confirmed these sentiments—and the reality is even harsher than anticipated.
According to the Fed’s Survey of Consumer Finances, U.S. wealth plummeted nearly 40 percent between 2007 and 2010, erasing 18 years of progress for the median U.S. household’s net worth. Specifically, median net worth dropped from $126,400 in 2007 to $77,300 in 2010, a level not seen since 1992.
Clearly, the housing crash—and the evaporation of perceived wealth—was a significant factor in the decline of middle-class net worth. However, income levels have also been on the decline. Continue reading
“As always, the Federal Reserve stands ready to act as needed to safeguard the U.S. financial system and economy should financial pressures escalate,” stated Federal Reserve Chairman Ben Bernanke to Congress last Thursday.
Following Bernanke’s comments, the stock market reacted swiftly, with the DOW falling 145 points from its peak for the day. Evidently, Bernanke’s assurances were not enough to appease investors.
Wall Street yearns for more than just words from the Fed—they demand action. The call is for QE3, for the Fed to inundate financial markets with liquidity, propping up stock prices indefinitely. This expectation has been cultivated over time during both Greenspan’s and Bernanke’s tenures.
At the Economic Prism, we believe the Fed will ultimately meet Wall Street’s expectations. Yet, for the moment, patience may be required, potentially even as the DOW takes a further dive of 2,000 points before Bernanke decides to fully deploy monetary easing.
More importantly, we view the fervor surrounding Fed monetary policy as a mere distraction. Bernanke’s assertion that the Federal Reserve is prepared to provide necessary support sounds reassuring. Continue reading
In this collection of reflections, we explore the current economic landscape and the sentiments that shape market reactions. Whether discussing the implications of Federal Reserve policies or tracing the roots of societal decline, the insights presented serve as food for thought amidst today’s financial complexities. As we navigate this intricate environment, continued awareness and understanding of market dynamics remain crucial.
