Ben Bernanke has rolled the dice in what is surely the most grandiose central banking experiment in the history of fractional reserve banking.  Let’s take a moment to evaluate the results:

We’ll break things down into two categories:  the things that we own and the things that own us.  Let’s start with the things that we own:

Since Ben Bernanke embarked on his grand experiment in 2007 the S&P 500 is down roughly40%.   Since his goal of reflation kicked in in late 2008 the S&P 500 is roughly flat.  Surely that is a an awful 6 month return, but considering the hellish 2008 and the awful start to 2009 you really can’t complain about the total return YTD.  It could certainly be far worse. The total return since 2007 of course, is disastrous.  Global equity wealth has been sliced nearly in half.

Central Banking Grade: C-

On the housing front there has been no stopping the relentless decline in prices.  Since Dr. Ben began his great reflation experiment in 2007 home prices have fallen roughly 30%.  Since reflation kicked in in late 2008 home prices are down about 8% – an enormous 6 month decline.

Central Banking Grade: D-

Let’s move on to the things that own us, i.e., the prices of things we can’t control through our own prudent decision making.  Money, raw materials, etc.

Since Dr. Ben began brewing his special reflation concoction in late 2007 the 10 year treasury yield has declined by nearly a quarter.  Not bad.  Since reflation kicked in in late 2008 the 10 year treasury has spiked back to its 2008 average.  Not good.   On the short end of the curve Dr. Ben continues to push on a string.  While effectively stealing every elderly citizen of their savings income, Dr. Ben is tirelessly pressing the gas on a zero interest rate policy that is doing little to help the banks.  Despite record steepness in the yield curve Dr. Ben forgot to input the variable in his equation where he forces consumers to borrow.  He must still be working on that. We all know the U.S. government is forcing banks to lend, but much like the Tango, it takes two to borrow.  His recent attempts to control the long end of the curve via quantitative easing have been an unmitigated epic failure….Meanwhile, job losses and wage deflation continues unabated.

Central Banking Grade: B-

Meanwhile in commodity land the Central Bank must surely be getting scared.  Since Dr. Ben embarked on his grand experiment in late 2007 the price of most commodities are roughly flat.  Oil is down marginally and gas is right back near its 2007 average.  Since reflation kicked in in late 2008 the price of every raw material under the sun has shot through the roof.

Central Banking Grade: F

So, the preliminary results are quite disappointing.  It appears as though Dr. Ben has essentially created inflation  in everything that owns us while maintaining the deflationary death grip on everything that we own.  Well done.

Overall Central Banking Grade: D+