The Federal Reserve has been printing money at a historic clip and buying up toxic assets for a shade under three years now — in response to the financial crisis. The technical term for their easy money policies is known as quantitative easing. As the following chart shows, there seems to be a pretty strong correlation between the ballooning balance sheet of the Fed and the price increases of stocks:
The stock market inflation doesn’t seem to reflect the actual condition of the economy i.e. the growth isn’t real, or possibly, sustainable. The roughly 48% increase in the S&P 500 since March of 2009 would suggest some sort of significant growth in the job market; but as we know, that hasn’t come to fruition. The latest jobs report had employers claim they added 244,000 jobs in April, while workers said they lost 190,000, pushing the unemployment rate up to 9%, from 8.8%. Gallup’s most recent measurement of underemployment rose to 19.3%, from 19%.
Quantitative easing has been great for stocks, but not so great for those that depend on the purchasing power of the dollar — that is, just those of us that eat, use energy, and save.
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