Bernanke Doctrine: New York Fed Boasts of Pushing Up the US Stock Markets

Remember the following statement which I have quoted numerous times on this blog?

History proves, however, that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse.

Those came from Ben Bernanke when he was yet in the academe.

Nevertheless such priorities seems to have served as the guiding policy creed by the Bernanke led US Federal Reserve ever since he took on the helm.

Proof?

The New York Fed even brags about their supposed accomplishments: providing lift to the US stock markets.

From CNBC

A report from the Federal Reserve Bank of New York suggests that the bulk of equity returns for more than a decade are due to actions by the US central bank.

Theoretically, the S&P 500 would be more than 50 percent lower—at the 600 level—if the bullish price action preceding Fed announcements was excluded, the study showed.

Posted on the New York Fed’s web site Wednesday, the study sought out to explain why equities receive such a high premium over less risky assets such as bonds.

What they found was that the Federal Reserve has had an outsized impact on equities relative to other asset classes.

For example, the market has a tendency to rise in the 24-hour period before the release of the Fed’s statement on interest rates and the economy, presumably on expectations Chairman Ben Bernanke and his predecessor, Alan Greenspan, would discuss or implement a stimulus measure to lift asset prices.

The FOMC has released eight announcements a year at 2:15 ET since 1994. The study took the gains in the S&P 500 from 2 pm the day before the announcement to 2 pm the day of the statement and subtracted that market move from the S&P 500’s total return over that time span.

Without the gains in anticipation of a positive Fed action, the S&P 500 would stand at just 600 today, rather than above 1300. (bold emphasis mine)

So there you have it: the ultimate insider trading and manipulators of stock market.

This also implies that the FED’s priority has been to advance the interests of the financial markets (Wall Street, bankers and the financial industry) at the expense of the real economy (entrepreneurs).

Yet many carp about US trade deficits (mostly mercantilists), when it seems clear that policy directives of the US government has long been in the direction of the financialization of the US economy.

Bottom line: Each time the US stock markets will come under selling duress, expect Bernanke’s FED to throw in taxpayers money in support of equity shareholders.