On Feb. 21, the president of the Federal Reserve's regional bank in Dallas admitted in an interview that the recent gains in the stock market have come not through improvements in corporate fundamentals, or sustainable economic recovery, but instead through the artificial manipulation by the U.S. central bank in the markets themselves. Just as the Dow, S&P 500, and Nasdaq have crossed highs not seen since before the credit crisis, the primary causation for the more than 30% rally in stocks has been the continuous inflow of money by the Fed to ensure stock prices remain high.
The Fed has artificially sustained markets. - Dick Fisher, President of the Dallas Federal Reserve bank
While this revelation has not been a secret to some investors and analysts, it gives concrete evidence as to why the stock markets have climbed with little resistance to levels nearing all time record highs, even as nearly every other economic indicator points the economy in deep recession.
Since 2008, the Federal Reserve has printed trillions of dollars in stimulus money through its quantitative easing programs, and Operation Twist. A large portion of this money has been funneled by the Fed into the stock markets, and validated by Federal Reserve Chairman Ben Bernanke when he stated the positive results of QE was a rise in stock market prices. Since the Fed's charter mentions nothing about using currencies to help support equity markets, and are primarily to use their monetary powers to stem inflation and lower unemployment, the central bank appears to have abandoned its mission during the past four years, and has focused on stocks as the primary indicator for creating economic growth.
With Q4 GDP falling into negative growth, and unemployment remaining higher than when President Barack Obama took office, the tens of trillions of dollars created from central bank easing has done little to halt, or fix, the current economic downturn known as the Great Recession. And with the head of the Dallas Fed today admitting today that the central bank has been artificially manipulating stock prices higher, even this economic indicator is nothing more than an artificially created monetary bubble.