Ben Bernanke’s latest announcement may provide a short-term boost to America’s love affair with bonds—but at the risk of longer term pain.
The Fed chairman last week unveiled a new program of easy money to help kick start the economy. He will, in layman’s terms, print money and use it to buy bonds, hoping to drive down interest rates and boost economic activity. It’s the third time he’s done this since 2009. He says he is willing to continue the latest program until it works.
Americans are already buying up all the bonds they can get. So far this year, we’ve pumped $220 billion into bond funds, even while yanking $80 billion out of equity funds, according to the Investment Company Institute. In the four years since Lehman Brothers imploded, we’ve poured $900 billion into bond funds, while withdrawing $410 billion from equities.