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The Fed Wants Dow 12,000



January 24, 2011 – Comments (0)

The Federal Reserve Bank has been pretty clear that they want higher asset prices and will do whatever they need to do to get it. The Federal Reserve Bank chairman, Ben Bernake, has been pretty clear that if people see their retirement accounts rising they will feel better about the economy and begin to start spending money again. After all, U.S. consumer spending accounts for 70.0 percent of the gross domestic product in the United States. Is Chairman Bernanke right about the way people will feel if they see their 401k, and other retirement plans increase?

In 2001, Alan Greenspan, who was the chairman of the Federal Reserve Bank at that time did all the things that Ben Brnanke is doing today. He lowered the Fed funds rate which is the overnight lending rate to the large major banks to 1.00 percent. Ben Bernanke has lowered the Fed funds rate to zero percent. The rate has been this low since December 2008. In five to six years Chairman Greenspan helped to create the greatest housing and credit bubble that the United States and most of the world has ever seen. Will the current Federal Reserve Bank leader, Ben Bernanke, cause an even larger bubble?

Chairman Bernanke said that he is 100 percent certain that the Federal Reserve can tighten rates when he thinks that problems are emerging from all this cheap and loose cash reserves that are being created. Didn't Allan Greenspan say the same thing. After all, Alan Greenspan did raise the Fed funds rate by 25 basis points all the way up to 5.00 percent. However, the bubbles were already made and the pop was heard around the world. Recently food riots have been breaking out around the world because of the increased and manufactured inflation. Higher inflation is obviously a direct cause of the central bank's QE-2 or as it also called, quantitative easing. Regardless of what Ben Bernanke says, he wants higher asset prices and that is a fact. As the Federal Reserve has always done they will deal with the problem when it occurs and hits home. Until then, enjoy the inflation rally and save those 401K statements.

Nicholas Santiago

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