The electorate has spoken and so has the Federal Reserve. The Party of No will now be in a position to speak words of more than that one syllable.
Meanwhile, Mr. Bernanke's monetary gift to the markets of quantitative easing is propelling them to new highs, especially assets benefitting from a weak dollar. Like sheep investors are being herded into a pen of commodities, export-focused stocks, and corporate bonds, anything but prosaic government bonds and CDs. QE2 is to stem deflationary forces and to stimulate the economy but the Fed is entering uncharted waters with its actions and will it create jobs? Beware of Federal Reserve economists bearing gifts to stimulate inflation and then be careful of getting more than what we wish for. The markets might party while Bernanke plays out QE2, and maybe even QE3, but what is the end game and don't markets ultimately discount what IT perceives as the end? I refer again to John Hussman's important observations on the subject
As to the election, the results were no surprise. I remember being "amused" by the rhetoric heard immediately after Obama's victory into his first few months in office, the Dow dropping almost two thousand points in that short period of time as being "evidence" of his "dangerous" economic agenda. It was immaterial that the markets had already been in a swoon for a year before by even a greater percentage. As the Dow recovered, up more than four thousand points since the "Obama low" not a peep about his policies being responsible.
Of course, neither the decline shortly after his taking power, or the Dow turnaround have much to do with his policies. The Federal Reserve can take responsibility for markets on steroids. A year ago I said "I still think the President could have devoted more of his first year to policies addressing what I called a 'new economic morality.' But Main Street seems to have been sacrificed at the altar of Wall Street and we are angry. Who truly believes the economic crisis is solved rather than being merely postponed?" That anger has spilled over into the midterm elections and, now, we will have the help of the Party of No -- and, who knows, perhaps they will have something positive to say and do. Time to take some tea and see?