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If the Fed Were Publicly Traded, Wall Street Would Savage Its Stock

NEW YORK (TheStreet) -- In early 2006, in testimony before the U.S. Senate, Fed Chairman Ben Bernanke told the senators that the subprime crisis had been "contained."

If the Fed were a publicly traded company, Wall Street would trash its stock based on the credibility of management, the failure of its policies, the loss of confidence of major constituencies and a weak -- if not insolvent -- balance sheet.

Reason 1: Some of the FOMC Members Don't Get It

From the minutes of the July 30-31 meeting of the Federal Open Market Committee, we find the following excerpt: "...several participants expressed confidence that the housing recovery would be resilient in the face of the higher rates...."

Thirty-year fixed mortgage rates (Freddie Mac) rose from 3.35% in May, before the Fed's tapering announcement, to 4.58% on Aug. 22. That's a 36.7% increase. The median price of a new home in July was $257,200, up $7,500, or 3%, from $249,700 in June. (The Fed, by the way, doesn't believe that there is any inflation in today's economy.)

If the typical U.S. family buying the median-priced home had purchased in May at $250,000 with a 20% down payment with a Freddie Mac 30-year fixed-rate loan, the principal and interest payment would have been $881 a month. By August, the principal and interest payment on a similar home costing the same amount with the same down payment would be $1,023 a month.

Thus, it isn't any wonder that new home sales (based on contracts signed) plunged by 13.4% between June and July. One has to wonder about the economic competence of those "several participants."

Reason 2: QE Has Flopped as a Growth Stimulator

A study by two Fed economists (Curdia and Ferrero), published by the Federal Reserve Bank of San Francisco Aug. 12, concludes that "asset-purchased programs, i.e., , quantitative easing appear to have, at best emphasis added, moderate effects on economic growth...."

The authors found that in the QE2 program, the asset purchases alone added only .04 percentage points to GDP. That's about $6.4 billion -- not much considering that QE3 purchases are currently $85 billion each month.

Reason 3: Foreigners are Unloading U.S. Treasuries

In June, foreign investors, believing that interest rates would continue to rise, unloaded U.S. Treasuries to the tune of $56 billion. For the same reason, U.S. commercial banks sold $20 billion. In that month, bond mutual funds and ETFs had net outflows of $25.5 billion. (July's outflow from the mutual funds and ETFs was $15 billion.)