Fed Trades With Primary Dealers Drive Market and Economy

by: Lee Adler

It’s mind boggling to me, just mind boggling, how few “experts” get the simplicity of the pipeline from Ben Bernanke’s twisted brain to his henchmen the Primary Dealers, to the stock market, and the economy.

When the Fed pumps money into Primary Dealer trading accounts, they manipulate stock prices higher. When stock prices go up, the top 1% is wealthier (or feels that way, even if it is just a false facade with no foundation) and spends more. That boosts economic activity at the margin. The mechanism is direct and immediate. And it works both ways. When the Fed reduced the SOMA (System Open Market Account) in 2007 and 2008 to fund its myriad emergency alphabet soup programs, it crashed the stock market and the economy.

Fed SOMA, S&P500, GDP, Industrial Production, and Employment - Click to enlarge

click to enlarge

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.