The Bernanke Put And The Bubble Blowing Machine

The Federal Reserve has essentially become a price fixing mechanism for an economy that has long struggled with severe structural problems.   When problems have arisen in the economy the U.S. central bank has intervened to lessen the blow to the economy.  Unfortunately, many of their policies have simply exacerbated the problems or kicked the can down the road.

This all started well before the housing bubble.  The bailout of LTCM was truly the first time the Fed intervened in markets to make sure that losers didn’t have to become losers.  LTCM was the epitome of failed economic theory at work in markets.  A group of brilliant economists believed they had discovered the path the minting money in financial markets.  On paper their equations appeared flawless.  In reality, they were a disaster waiting to happen.

The Federal Reserve is not dissimilar in this regard.  For 18 years Alan Greenspan ran the nations central bank based on theories and beliefs that he later referred to as being “flawed”.  Despite this, much of his work influences the current central bank.  In fact, today’s Fed is more involved in markets than ever.


01 = Burlap
02 = Butter
CC = Cocoa
HG = Copper Scrap
C2 = Corn
06 = Cotton
30 = Hides
LH = Hogs 09 = Lard
10 = Lead Scrap
11 = Print Cloth
12 = Rosin
13 = Rubber
BO = Soybean Oil
57 = Steel Scrap
LC = Steers 17 = Sugar
18 = Tallow
54 = Tin
MW = Minneapolis Wheat
KW = Kansas City Wheat
22 = Wool
23 = Zinc


Unfortunately, the Fed is not the only central bank meddling with markets.

reuters post


This post previously appeared at The Pragmatc Capitalist >

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