The reality is that after 4-Q.E. programs, a maturity extension program, bailouts of TARP, TGLP, TGLF, etc., HAMP, HARP, direct bailouts of Bear Stearns, AIG, GM, bank supports, etc., all of which total to more than $30 Trillion and counting, the economy has grown by a whopping $954.5 billion since the beginning of 2009. This equates to a whopping 7.5% growth during the same time period as the market surges by more than 100%.
However, as shown in the chart above the Fed’s monetary programs have inflated the excess reserves of the major banks by roughly 170% during the same period of time. The increases in excess reserves, which the banks can borrow for effectively zero, have been funneled directly into risky assets in order to create returns. This is why there is such a high correlation, roughly 85%, between the increase in the Fed’s balance sheet and the return of the stock market.
Unfortunately, while Wall Street benefits greatly from repeated Federal Reserve interventions – Main Street has not. Over the past few years as asset prices have surged higher – consumer confidence has remained mired at levels historically associated with recessions. This is reflective of weak growth in personal consumption expenditures which is primarily a function of weak income growth.
As an example – the last two reports on personal incomes and expenditures show that more than half of the increase came from increase in gasoline and food prices. The problem with this, as we have explained previously, is that higher “sales” is not a function of greater volumes of product sold – just simply more dollars spent for the same amount of goods. This is more commonly known as “inflation.”