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Posted by on Oct 6, 2010 in Economy, TG Roundup

What is POMO King Ben Upto?

POMO stands for permanent open market operations by the US federal Reserve Board. With a POMO, the Fed buys the US Treasury debt and pumps liquidity into the system. The idea is that the money freed-up from holding US Government bonds will be put into use in boosting the spending and thereby the economy. In the summer of 2009, the Fed did a series of POMOS which boosted the stock and bond markets rather than giving any significant lift to the economy.

Off late the Fed is doing POMOs in overdrive. Yesterday alone (Tue, Oct 05 2010) the Feds bought nearly $5 bil treasuries. Where do you think all that money went? You guessed it – stock market. Stocks of Netflicks, Apple, PriceLine are being bid to insane levels. Not that there is anything wrong if the stock prices go up on their own fundamentals. But the problem is, the freed-up money from POMOs is being used to buy a few specific stocks – that too by increasingly by a small number of players in the market, the players being – computers. Yes, robo-trading.

The Fed is essentially a private bank controlling the entire banking in the largest economy in the world. Through these POMOs who is Uncle Ben really propping? The economy? The stocks? His Wall Street buddies? Or, President Obama as a Quid-pro-Quo for reappoint Ben?

Friends, this insanity will end in a terrible ordeal for all of us.