NEW YORK (TheStreet) -- As detailed in a previous article on TheStreet, the stock market recently surged from remarks by Dr. Janet Yellen, the nominee to replace Federal Reserve Chairman Ben Bernanke, that the American economy was still so weak that it required massive monetary assistance in central bank policies through the continuation of quantitative easing.
Markets have again reacted strongly to a statement about how weak the U.S. economic recovery is from The Great Recession, this time from Bernanke, in a speech to a gathering of economists at the National Economists Club Annual Dinner in Washington, D.C., Tuesday night.
While Bernanke did note that the American economic situation had improved, he cautioned that, "we are still far from where we would like to be, and, consequently, it may be some time before monetary policy returns to more normal settings."
Bernanke offered no clues as to when Quantitative Easing III, the Federal Reserve policy of purchasing $85 billion a month in Treasury securities and mortgage-backed bonds in an effort to maintain low interest rates to propitiate economic recovery that was launched in September 2012, will either taper or end.
As a result, the liquidity-induced rally of the equity markets looks to be continuing.
Low interest rates favor the stock markets for a variety of factors. Yields on bonds and savings accounts are too low to attract those looking for a decent return. It also makes it cheaper to borrow to buy stocks with margin debt. According to Stephen Suttmeier of Merrill Lynch, margin debt is now at a all-time high of more than $400 billion. Corporate earnings are also better, as companies can borrow cheaply.