How Bernanke’s Boosting the Markets for Us
Ben Bernanke is doing his best to send stocks higher, Cramer said Tuesday, because it's the one way he can prevent the US economy from falling into an elongated period of economic stagnation, like Japan had in the 1990s.
To avoid Japanese-style deflation, Cramer said the Federal Reserve chairman's plan is two-fold: get money back into equities, especially in growth and high-yielding stocks, and send the stock market back up so that people will start spending again.
People seem to think Bernanke’s policies directly affect the economy, but that’s not true. He, unfortunately, can’t boost home prices or wages, or create jobs for that matter. But what he can do is use the tools at his disposal to create an environment where these things are possible. For one thing, he has kept interest rates low enough that you’d think we would have seen more hiring by now. And he is taking similar steps to prop up the stock market. Here’s what he’s doing:
Bernanke can flood the world with US dollars to drive up commodity prices, something the markets want very much. He can keep the dollar’s value low, thereby increasing profits for American companies that do business overseas. And these increased earnings entice investors back into stocks. Plus, Bernanke can keep interest rates so low as to make Treasurys and certificates of deposit virtually worthless as investments. That brings investors back to stocks, too.
“So don’t think about the Fed as trying to create jobs and stabilizing housing,” Cramer said. “I am telling you that we’re looking at this all wrong if that’s what you think. Bernanke’s trying to juice the market, to create wealth for you.”
Investors are awaiting the results of the Fed's two-day policy-setting meeting, which began Tuesday and ends with a much-anticipated statement Wednesday afternoon. While many economists expect the Fed to announce plans to buy Treasury securities to stimulate the economy, Cramer said Bernanke will use "any means necessary" to prevent the "Japanization" of the US economy.
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