Markets surged during the afternoon yesterday as investors somehow managed to overcome poor economic data to finish with substantial gains. The NASDAQ jumped up 0.84 percent (17.78 points), followed further behind by the S&P 500 (0.33 percent, 3.46 points) and the Dow Jones (0.20 percent, 19.61 points).

Analysts expected markets to jump during the morning today, but the gains have been somewhat meek. Yesterday markets gained despite poor housing numbers. Today they are gaining despite jobs data that leaves much to be desired.

According to Bloomberg News, initial jobless claims dropped more than expected when figures were released this morning. Claims dropped by more than 31,000 to settle at 473,000 for the week ended August 21. Some see this as an indication that the labor market is not deteriorating after all. Others see it a blip on the radar. If claims data for this week turn upward investors and analysts will once again clamor that the sky is indeed falling.

In other news, according to Reuters, the United States is fast approaching what could be another volatile month for the economy. August 2010 has been dictated by a boom-bust cycle that seems to shift almost daily. Corporate earnings one day lift markets; unemployment data the next depress them again. As we forward to the month ahead we are likely to see much of the same.

In the face of this uncertainly, Federal Reserve chairman Ben Bernanke may attempt to revive efforts from his office to boost the economy yet again. In 2002 Bernanke famously said that he would happily resort to dumping money out of helicopters if it meant he could avoid the so-called “stagflation” which had doomed this country earlier in its history.

Now, according to MarketWatch, he may have to seriously consider something drastic like that.

To combat deflation during his tenure with the Fed Bernanke has made liquid assets more available in the U.S. economy. The result of this has been inflationary pressure that is already beginning to worry some pundits. Despite the efforts of the Fed the American economy is not recovering as many had hoped. This is likely the result of who is on the receiving end of this infamous “liquidity”.

When the Fed lowered rates, and maintained them at near zero, banks were able to cash in. The largest and most profitable companies in the United States were able to gamble with free money from the Fed. This money did not go out into the economy; it went into financial instruments on Wall Street.

The rest of the U.S. is bleeding cash night and day. Perhaps if the chairman truly wants to help us weather this economic storm he should consider finding a means of getting money into the hands of the people who need it, rather than the bankers who play with it.

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