The Fed's Juice is Loose: Where Cheap Money is Effective, and Where it Isn't

The "Ben Bernanke put", a trader's term to explain the impact of cheap money on markets, is real.

The federal reserve balance sheet continues to grow as the central bank "juices" the market through Treasury purchases. You see the impact below, with cheap money helping to propel the stock market, as seen here in the rise of the S&P 500.

^INX Chart

^INX data by YCharts

Of course, asset inflation (did anyone say "bubble") isn't what the Fed has in mind. (Mortgage values would have been nice to re-inflate, but that was impossible.) It wants to spur economic activity and boost hiring. That hasn't worked as well.

Assets - Securities Held Outright - U.S. Treasury Securities Chart

Assets - Securities Held Outright - U.S. Treasury Securities data by YCharts

It's a lesson in the power of global markets and of businesses to boost productivity and operate with fewer workers. Each recent recession has taught companies to do more with less labor. Productivity creates wealth (often invested in stocks and other assets) but employment suffers. The Fed's effort, though not so effective, doesn't lack for scale: its has grown to almost $3 trillion dollars approaching 20% of GDP.

Federal Reserve Total Assets Chart

Federal Reserve Total Assets data by YCharts

Backers of the Fed approach argue, of course, that without the super-low interest rates, the deep recession and high jobless rate would both have been far worse. True, that. But more and more, monetary policy looks like a blunt instrument at best.

From the editors of YCharts.YCharts Pro Investor Service includes professional stock charts, stock ratings and portfolio strategies.

Read more articles about: Economic Watch  

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