This is an interesting article for a couple of reasons. From the depths of the financial crisis, over 2 1/2 years the Fed doled out $16.1 trillion in emergency loans. $3.1 trillion went overseas and a staggering $7.74 trillion going to the nations’ four largest banks. What makes that number interesting is a calculation done by Bill Buckler (via Zerohedge) in his latest edition of “The Privateer.” I’ll attach the specific quotes from Buckler below, but the crux of the matter is this: On the date of the Fed audit, the total stock market capitalization was about $15 trillion. Thus, half of the markets capitalization was provided by the Fed. Here is the Buckler text:
“According to the official figures put out by the US government, the economic “recovery” in the US celebrated its second anniversary on June 30, 2011. The “fuel” burned in this “recovery” is immense. Mr Obama’s presidency has ushered in the era of $US 1 TRILLION plus annual deficits riding on top of 0.00 percent controlling interest rates from the Fed. It has also ushered in the era in which almost nothing is traded on the paper markets which is not – explicitly or implicitly – guaranteed by the government.
The fuel to keep the global financial system functioning does not stop at the borders of the US. The “Dodd-Frank Wall Street Reform and Consumer Protection Act” has just produced the first ever “audit” of the US central bank. It reveals that in the period between December 2007 and July 2010, the Fed parcelled out $US 16.1 TRILLION in emergency loans to financial entities all over the world. Almost half of this – a total of $US 7.75 TRILLION – was loaned to four US banks. They were Citigroup, Morgan Stanley, Merrill Lynch and the Bank of America. In July 2010 (the cut off date for this “audit”), total US stock market capitalisation was $US 15 TRILLION. The Fed provided about half of that.
This inflationary explosion is unprecedented in any era. It represents the biggest ever effort to rescue a debt-based system from the ravages caused by its own debt issuing excesses. It has, at best, provided a “remission” for global paper markets. The cost has been devastating for REAL economies everywhere.”
I’ve attached a link wherein you can find the actual text of the Fed audit.
When viewed in this context, the magnitude of the so-called “Bernanke Put” is evident. It certainly helps explain why, in the face of countless macro risks, the equity markets have continued to march higher. Admittedly, we did not take full advantage of the Bernanke put, as our approach tends to balance the macro with the micro. Going forward, however (assuming no return of QE), fundamentals will likely increase in relevance.