Federal Reserve Will Pump Money into the Stock Market, Bond Market, and Europe

Why is this so predictable?

Federal Reserve Chairman Ben Bernanke. His job is to print more money for the elites and politicians.

The only trick in the bag for Keynesian economist is to inflate the money supply. The only question is how and where. Federal Reserve Chairman Ben Bernanke will announce next week “Operation Twist” where he will outline more inflation programs.
Wall Street reacted positively for his last Federal Reserve news conference with a 430 point rally. There is little doubt that next weeks announcement will have much the same effect on Wall Street, and potentially create irrational exuberance.
This does not translate to Main Street in the long run, but the press will report it as a positive. It simply means the Fed is pumping money into Wall Street assets, creating profits for millionaires and inflation for Main Street citizens.
What Bernanke will most likely do is buy longer term bonds, cheapening money, making the stock market more attractive. Yields lately have increased up to 1%, printing more cash to purchase long-term bonds would drop the yields.
One of the ways to accomplish this would be to announce a ceiling on 10-year bonds of 1.5%. This would give the Fed the excuse to purchase bonds when the ceiling went above the 1.5% yield, pumping “liquidity” into he bond markets, and indirectly Wall Street by making bonds less of an attractive investment alternative for consumers.
Bernanke might increase the cost of parking reserves from commercial banks at the Federal Reserve by eliminating interest payments on the reserves. This would mean with an inflation rate of 3.6% the $1.618 trillion reserve balances with federal banks would lose $58.2 billion a year in value plus the loss of another $1.6 billion from the discontinuation of interest payments. The goal is to turn out this cash on Main Street in the form of loans.

Reserve balances with the Federal Reserve banks sitting idle, potentially $16 trillion in new loans.

The potential loans possible with these reserves are over $16 trillion. The GDP is currently $14.99 trillion. Unless the GDP keeps pace with the money supply these new loans would create the potential for substantial amounts of inflation.
The Fed will also continue the policy of bailing out Europe, weakening the dollar, and increasing inflation pressures in the USA.
One of the reasons China has been sitting on the sidelines with trillions not choosing to buy Euros is that Chinese Central Bankers know the USA will do it for them. Latter when the USA is in a weaker financial position than today and Europe continues to struggle with debt China will be in an even stronger position to choose a bail out of Europe or America, most likely Europe for many geopolitical reason, including ending the United States dominant global position in the world.

Printing money does not solve economic problems

Buying European financial instruments also accomplishes the goal of creating inflation and forcing banks to make a decision to pull reserves losing value at the Federal Reserve and theoretically put the money onto Main Street. Bernanke may be up front and honest about this policy of deliberately increasing inflation to stimulate more loans to Main Street with the intention of lowering unemployment. Economists refer to this as the Phillips Curve where inflation is increased and unemployment is reduced in a trade off.
Bernanke might also open the Federal Reserve discount window up to a wider spectrum of financial investments.
“It could offer fixed-term loans to banks at low or zero interest, with a wide range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral. For example, the Fed might make 90-day or 180-day zero-interest loans to banks, taking corporate commercial paper of the same maturity as collateral. Such a program could significantly reduce liquidity and term premiums on the assets used as collateral. Reductions in these premiums would lower the cost of capital both to banks and the nonbank private sector.” Zero Hedge, 9-16-2011.

A German businessman buying a loaf of bread in 1925

The bottom line is the Federal Reserve has one trick, printing money. The PhD level bankers switch up their tricks to confuse the public, but it comes down to printing and paying off Wall Street, the White House, and for now the Europeans. Life will remain good for the elites, they own the bank, as long as their money is worth something.
What this will mean for Main Street is a probable money bubble that will almost certainly confuse voters in the 2012 election, which is the game plan. The bust will soon follow, as it always does.
Bernanke has been trying this strategy for years with, at best, modest success. This will be another attempt at creating the final bubble in the United States before the final collapse of the US dollar. With the collapse of the dollar and the end of our standard of living the chances for a dictatorship or dissolution of the United States increases dramatically.
Obama, and the Democrats, are praying desperately that his last attempt by the Federal Reserve works before the 2012 elections. They hope and pray to maintain power in the coming years when today’s inflation rate of 3.8% is a fond memory. We the people want freedom from the elitist tyrants. Knowledge is power.