“Bernanke comments keep equities in check,” says a headline in The Financial Times.

Sure enough. The Dow ended down again – 21 points down. It’s been going down for five weeks. But it’s still above 12,000. So there’s nothing to be alarmed about.

What did Ben Bernanke say? Not much really. He allowed as to how the economy was not as strong as he had hoped. But he said things were getting better. And he didn’t mention QE3.

So why was the market unhappy? What difference did it make what Bernanke said?

Ah…that’s the funny thing. Stock prices are now the responsibility neither of willing buyers nor sellers, neither of the bears nor the bulls…but of the US central bank.

Bernanke said he wanted higher stock prices. He used QE2 to boost them. He said the “wealth effect” would make people feel better off. Then, they’d spend more money. And then, they’d actually be better off.

Of course, you can see the problem with that. If it were that easy to make people richer, why not give them more quantitative easing every day of the week?

Instead, investors know how the game works. They know you “don’t fight the Fed.” So, if the Fed is trying to push up stock prices with cash and credit, you go along for the ride. You buy stocks, confident that the Fed has your back.

The economy actually gets worse…as higher prices sit on family budgets like a fat cowboy on a skinny horse.

And so, the stock market comes to reflect neither the economy nor what stocks are worth. Instead, it shows what speculators think they can make from anticipating Ben Bernanke’s next move. They watch the Fed. If Bernanke looks like he is going to pump in more money, they buy. If they’re not sure, they wait. If they think the Fed is pulling out of the stock market, they sell.

Right now, they’re selling…because they see QE2 ending…and no QE3 starting up.

‘Wait a minute, Bill, are you saying that the Fed is manipulating the stock market?’

Yep.

‘Isn’t that against the law?’

Yep.

‘How does the Fed get away with it? How come the SEC doesn’t come down hard?’

Oh, you silly goose. Stop asking stupid questions. The market is fixed. The SEC is in on it. It’s all part of the zombie system of finance. The dollar pretends to be real money. Debt pretends to be capital. And regulators pretend to be smarter than capitalists. Details to follow.

We promised yesterday to tell you more about what we think Mr. Market may be up to. You’ll recall that Mr. Market is wily. Sometimes cruel. Always inscrutable.

One thing Mr. Market will not do: he will not do what people expect. Why not? Because he would have already done it. In other words, if everyone thought stock prices were headed higher, they would already be higher.

From that bit of logic we infer that Mr. Market will generally do what most people do not expect…the very thing that will cause them most pain and suffering.

What’s that?

Well, what lesson have investors best learned over the last 20 or 30 years? They’ve learned that things go up. Since 1980, stocks are up about 12 times, even after the slipping and sliding of the last 10 years.

After such a powerful performance investors trust stocks, over the long run. Indeed, many analysts refer to the last 10 years as a reason stocks should go higher over the next 10.

‘It is so unusual for stocks to do so badly,’ they say. ‘Surely, they wouldn’t do that two decades in a row.’

Oh yeah? Stay tuned.

We saw yesterday that the federal government’s real debt has risen to $62 trillion. No way are the good citizens of the United States of America going to put their heads down and pay that kind of debt. They couldn’t do it even if they wanted to.

The history of the last 30 years is a history of debt accumulation. The future…perhaps for the next 10 to 20 years…will be a story of debt cancellation, restructuring, write-offs, defaults and foreclosures.

Psst. Want to make some easy money?

If you’re one of the 15 million Americans who is underwater, it’s easy. If your house is worth less than the mortgage outstanding against it, simply walk away.

Why not? Do you think the bank would stick with a losing position? Uh uh. It would cut its losses. You should too.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.