Bernanke Created An Economy Recovery Illusion

Fed chair Ben Bernanke's low interest rates and monetization programs have flooded the markets and created the illusion of economic recovery.

But investors and consumers remain skeptical. In fact, (according to zero hedge) less than $400 billion has moved from Money Markets into stocks in the last 6 months even though the index value has increased by more than $2.7 trillion.

So, where did the money come from? The Fed has taken trillions in toxic securities onto its balance sheet, thus, providing financial institutions with the liquidity they need to goose the stock market. With securitization in a shambles, the banks have fewer opportunities to meet earnings expectations.

Lending is down, but speculation is up.

Way up.

Bernanke knows that neither stimulus nor liquidity will fix the economy. That's because many of the financial institutions that took out loans from the Fed are technically insolvent. (Borrowing more money won't help if you're already drowning in red ink.)

Even so, he is committed to keeping the big banks afloat and patching together the flawed wholesale credit system any way he can. This is why Bernanke should never have been reappointed.

True, he demonstrated impressive imagination and skill in pumping liquidity into the financial system, but he's done nothing to role up insolvent institutions or to purge toxic assets and non-performing loans from the system. The Fed has merely provided enough taxpayer-funded scaffolding to keep a rotten system propped up a little longer.

What good does that do?