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Ben 'Buzz Lightyear' Bernanke and the Fed's New Challenge Ahead


Having achieved market compliance, policymakers face more difficult obstacles than they and investors think.

Editor's note: This article originally published on September 18, 2012.

MINYANVILLE ORIGINAL In the afterglow of the Federal Reserve's Buzz Lightyear "to infinity and beyond" commitment to purchase up to an unlimited amount of financial assets until... well, until, the financial and media pundit comments have been simple, clear, and extraordinarily consistent. For example, from the MarketBeat blog of the Wall Street Journal: "Does anybody have any doubt that the major indexes will hit all-time highs?" Or this from The Economist: "Who would bet against a central bank that can conjure money from thin air?"

While on the surface, these comments should be viewed as positive indicators for the market and what is ahead for investors, I am afraid that as a socionomist, my take is much more the reverse.

What is clear from the market's messages from the past four days is that the Federal Reserve has finally succeeded in convincing investors that they should not fight the Fed. Lest there were any lingering doubts, the Fed made it clear that it will use, if necessary, unlimited resources for as long as it takes to lower unemployment. Not only has tail risk been eliminated, but all risk has been eliminated. Markets can and will only go up from here.
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