Help understanding something Bernanke said

[rj.phila]

i was just reading an article on the yahoo home page(can't link to it because of low post count, sorry!), and was hoping someone could help clarify something he said. the story is titled "bernanke defends bond buys". in particular, it's this quote:

"Bernanke has said he hopes the Fed's bond-buying program will help lift stock prices. In part, that's because lower yields on bonds would cause some people to shift money into stocks.

Higher stock prices would boost the wealth and confidence of individuals and businesses. Spending would rise, lifting incomes, profits and economic growth. Bernanke has referred to this as a "virtuous cycle."

Should I interpret this quote as meaning that Bernanke thinks that consumer spending is low because INDIVIDUALS, or the average persons'(i.e. middle class/working class america) stock portfolios dont generate enough money for them to be spending? Or is the inclusion of the word "individual" merely incidental, and what he really is saying is that if corporations' stock values will rise, the benefits will "trickle down" to middle class/working class people?

or am i totally off on interpreting this? thanks for the help. -rj

[jIM_Ohio]

interpret this as "if stock market improves, consumer confidence improves"

people don't spend what is invested, but it gives them confidence to spend

[EEinNJ]

The policy of the Fed buying Treasuries is intended to provide liquidity by effectively cutting interest rates. The theory is that "cheap money" will lure businesses and consumers to take on debt, and spending this borrowed money will stimulate demand.

I have heard numerous predictions that the bond market is ripe to fall, because it has become an asset bubble due to investor flight-to-safety. At this point current bonds actually have a negative rate of return. So this latest move may well push bond investors back to equities.

It's disturbing that Bernanke is so misguided in how to deal with what's really going on- he's like a carpenter who only has a hammer. Big corporations are making record profits. They are flush with cash, but won't take on the risk of hiring.

The "wealth effect" has encouraged spending before- and it's what led to the recession. Remember, Greenspan used the policy of cheap money to forestall a recession, and when stocks declined, investors worldwide went to mortgage backed securities, etc. seeking higher returns. And consumers bought houses and cars they couldn't afford in the long run.

For individuals, unemployed people don't go shopping much, do they? And if you're one of the under-reported part-time, reduced wages, or just plain gave up workers, you aren't spending either. And if you're losing your house, or you can't sell it because the market is glutted, you're not going to hire contractors or go to Home Depot.

[jIM_Ohio]

The policy of the Fed buying Treasuries is intended to provide liquidity by effectively cutting interest rates. The theory is that "cheap money" will lure businesses and consumers to take on debt, and spending this borrowed money will stimulate demand.

I have heard numerous predictions that the bond market is ripe to fall, because it has become an asset bubble due to investor flight-to-safety. At this point current bonds actually have a negative rate of return. So this latest move may well push bond investors back to equities.

It's disturbing that Bernanke is so misguided in how to deal with what's really going on- he's like a carpenter who only has a hammer. Big corporations are making record profits. They are flush with cash, but won't take on the risk of hiring.

The "wealth effect" has encouraged spending before- and it's what led to the recession. Remember, Greenspan used the policy of cheap money to forestall a recession, and when stocks declined, investors worldwide went to mortgage backed securities, etc. seeking higher returns. And consumers bought houses and cars they couldn't afford in the long run.

For individuals, unemployed people don't go shopping much, do they? And if you're one of the under-reported part-time, reduced wages, or just plain gave up workers, you aren't spending either. And if you're losing your house, or you can't sell it because the market is glutted, you're not going to hire contractors or go to Home Depot.

Making money available will get people hired (eventually)
the stock market going up will only improve confidence, it will not get anyone hired directly

Big companies will only hire if the positions generate revenue... for example my company has about 60-100 openings (in the US) and we cannot fill them fast enough. But finding qualified people is tough to do, and takes time.

Small companies which see a niche will begin to take off. I would not be investing in bonds, and I would be looking at small cap tech stocks for where market is going next 2 years. Large companies lead us out of recessions, small companies prosper once the economy is growing.

[rj.phila]

thanks guys. just trying to be clear on bernanke's intentions as this all rolls out.... ps-sorry if this should be in another forum!