As 2010 got underway, the rally in stocks of 2009 offered encouragement. Economic data was still improving on a relative basis due to the massive stimulus, quantitative easing and inventory buildup. As 2010 continued however, the “recovery” began to fade. The stimulative measures by the government and the Federal Reserve began to show that the immediate impact of them was short-lived.
While the Federal Reserve and other leaders including President Obama have been touting a “summer of recovery”, in July and August, the Federal Reserve began to change its tone. Bernanke admitted to an environment that is “unusually uncertain.” What the heck does that even mean? Imagine giving that kind of response to your boss regarding your performance or numbers – he’d probably smack you. Bernanke followed up his bizarre statement with the renewed QE efforts on August 10th which has opened the door for more printing of money – a clear indication that Bernanke and the others know the economy is still in shambles.
If you were asked a few years ago if in August of 2010 would the Fed be pulling back or stepping on the pedal in terms of easing and stimulus, you would have definitely guessed pulling back. Unfortunately, this isn’t your regular recession, it’s the Depression of the 21st century and it will last years, maybe decades. As such, Bernanke knows we’re still in the beginning which is why he’s opening up the printing press again.
2010 ended with the stock market rallying. Therefore, if you’re employed and you follow the markets, you might think the country is doing better. If you’re unemployed and could care less about the Dow, you still feel the depression.
The Fed is betting the house on creating a “wealth effect” and hoping it spurs economic activity. By inflating asset prices, they hope people feel wealthier and then go spend money. Of course, consumption isn’t the answer so even if it works, it won’t fix the structural issues with the economy.
While Wall Street prospers, the real economy continues to crumble and the middle class continues to erode.