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How Big Is the Punch Bowl?

Posted by Larry Doyle on October 7, 2010 1:00 PM |

Party on.

In watching a midday Bloomberg interview, the host Tom Keene asked his guests just how big the punch bowl will be that Fed chair Ben Bernanke puts in front of investors at the next Fed meeting. The punch bowl being the size of the highly anticipated second round of Federal Reserve quantitative easing that is driving interest rates lower and asset prices higher.  

While this punch bowl may be smaller than the initial party launched in 2009, the fact is expectations are that this punch bowl will run anywhere from $500 billion to $1 trillion in size. That is a lot of liquidity to keep the Wall Street party going. However, that figure is also a very strong indication as to the enormity of the underlying problems embedded in our economic foundation.

While Washington may care to mask our nation’s sorrows in the punch being provided by Mr. Bernanke, are we supposed to think this punch is somehow magical in that it does not create a massive hangover? Do not be so naive. Our hangover will be that much greater.

The other reference that I appreciated from this Bloomberg interview was the comparison between the policies being pushed by Bernanke relative to his predecessor Alan Greenspan. While many viewed Greenspan as having provided a large measure of support to the market via a “Greenspan put“, the Bernanke policy is described as a “Greenspan put on steroids“.

The market is the market, but nobody can tell me that this grand financial experiment does not come without massive risks.

Larry Doyle

Sense on Cents/Punch Bowl

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Mike

    The game of musical chairs continues. We are on a very unsustainable path. In October 2000 we had no CLUE what was to come… how ’bout this decade?

  • Aaron

    I hear from good sources that the bowl is 1-2 trillion. David Faber,cnbc, interviewed someone in Tx and this gentleman quoted a non voting former fed member as saying they need 7 trillion. Nothing like an unelected body given the power to destroy us all. Central planning has always failed and the Fed is the prime example.

  • LD

    Aaron,

    I would not doubt that our economy does need multiple trillions of dollars in support. The fact is the ‘size of the hole in our economy’ has never been properly diagnosed.

    Regardless of the size of this round, will there be a need for even more after this? Who can ultimately control Bernanke?

  • Sean

    The markets have-been buying the rumor of QE-2 for a little over a month-now; get-ready to sell the news. The Fed recently became the 2nd-largest holder of U.S.-Treasuries; how-much longer before the whole world sees this ponzi-scheme for what it is? What happens to all ponzi-schemes in the end? Got gold??






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