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Bail Out Wall Street but Ignore Main Street? The Three Biggest Grievances of the American Public


Ben Bernanke's money printing in the name of "saving the financial system" rings hollow to those who don't benefit.

Yesterday's Fed policy meeting concluded without doing anything except make some noise about "downside risk." It appears to me that the Ben Bernanke Fed has been wrestled to the ground by the hawks on the monetary policy committee. This is a good thing. That there was only one dove, Charles Evans, who wanted to ease more means that Mr. Bernanke does not have the votes necessary to keep easing ad nauseum.

In my heart, I was hoping that Occupy Wall Street (OWS) and the extraordinarily low esteem with which Americans hold the Fed, may have, ever so slightly, stunted the Fed's "bail out Wall Street but strike at Main Street" policies. But that may be an empty dream, and I may have to wait for another chairman who listens to the public. In the meantime, let's take a look at the grievances that the American public and the OWS protestors rightly have with the current US Fed. In particular, I want to help those people who are gnashing their teeth under the lashings of the zero-interest whip meted out by the Fed articulate to the media what it is that the American public see as unfair policies by the Fed.

1. The public does not believe in the "more inflation is good for GDP" logic that Bernanke relies on.

(See: Fed Losing Credibility as Inflation Expectations Surge)

Bernanke thinks we need more inflation. But the US public is very afraid of the inflation that is already raging -- and that is likely to continue to rage -- due to the enormous money printing and endless bailouts of the Fed head. His money printing (quantitative easing) exercises in the name of "saving the financial system" ring hollow to those who don't benefit from it. If anyone in mainstream media parrots this empty rhetoric from the Fed, then he or she needs to stop and walk to Zuccotti Park and talk to the people there. Bernanke has taken rates down to zero and held them (and has promised to hold them) even as US inflation readings are comfortably above 2% (his stated upper target for inflation). Additionally, his persistence in light of GDP growth readings of 2.5% (as we saw last week) is baffling to Main Street: Why would someone stubbornly cling to a zero interest rate regime when neither GDP nor inflation readings seem to warrant it? The only answer that the public sees: As long as the zero interest rate regime helps Wall Street, who cares about Main Street?

2. The public has lost faith in markets and does not care about the stock market anymore.

(See the Wall Street Journal story: Investors Lose Faith in Stocks)

The second baffling thing about the Bernanke Fed that the public does not understand is this: Why does Mr. Bernanke feel the urge to rush to cut rates to zero, or initiate quantitative easing whenever the US stock market takes a dive while he did nothing for the public when the foreclosures raged on? After all, even his infamous predecessor known as Alan "Easy Al" Greenspan did not print money so frequently. But the US public, watching the obscene amount of golden parachutes for failed CEOs (while their companies file for bankruptcy), has finally had it with bailouts. The same public is also angry at the pension fund manager or the mutual fund manager to whom they entrust their hard-earned money; they seem to do nothing to prevent these abuses.

An aghast public finally asks Mr. Bernanke: Since when did Congress entrust in the Federal Reserve the right to intervene when something bad happens to the US stock market? They are still waiting for an answer on this one.

3. The public holds Mr. Bernanke in low esteem, which means his credibility is low.

(See this Bloomberg survey: Bernanke Fares Poorly in Public Poll)

Think about this for a second. Most of us would not have heard of Mr. Bernanke had it not been for the hype about him being a "Depression-era" scholar, and hence "uniquely" qualified to head the Fed. The public does not buy that line of argument. While S&P recently downgraded US debt from AAA to AA+ -- which was an impossible event in Mr. Bernanke's academic theories -- the public saw this as a likely outcome in survey after survey, years before the US debt was downgraded. Who was smarter?

You can bet, however, that Mr. Bernanke and his academic cohorts will go about preaching the gospel that you have to have buy more US Treasurys or dodgy mortgage-backed securities even if they are going to be downgraded. The bond bulls who charged into US debt and credit markets last week were not true believers of this newfound doctrine but rather front-runners of the Fed's hand-waving signals. Though it is no longer true that US Treasurys are risk-free except to these bond bulls, it doesn't really matter, because they have "faith" in Mr. Bernanke's actions.

I, for one, will not be in this camp of "faith-based investing." I would rather change my mind when faced with facts, than to discount the facts working against my theories. After all, economics is not my faith. Or to put it another way, I don't have faith in economists.

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