Tapering Nonsense

[Executive Sadman]

They cant taper....the reason they cant is that it never worked in the first place...the numbers look good though, and the moment the stop, the numbers look bad.

Obama doesnt have the cojones or the will to take it on the chin...although now would be a good time to stop the nonsense, as Obama cant get re-elected this time around.

Who knows, they have a habit of screwing the next guy...Clinton left bush the dotcom bust, Bush left Obama the housing bust...Greenspan was essentially the same mould as Bernanke, there is a limit to what they can do.

[Bland Unsight]

Isn't it just that the market cares more about what will happen in the next 6 weeks than in the next six months ?

The market is liquid and people can sell on a sixpence.

Yeah, this is what all the jokers trading RMBS and CMBS thought, right up to the moment when prices collapsed and they needed to sell. The market is liquid, until it isn't.

They're talking about the same thing. QE is used to suppress bond yields, lower carry costs and hold up asset prices. If/when QE is withdrawn bond yields will rise, interest rates will rise and asset prices fall. Since every asset class is in bubble territory already there's a lot of volatility about.

I'll buy this. As the bubbles ramp up, we must end up with a lot of people holding speculative long positions that they don't hold because of any analysis of so-called 'fundamentals', (i.e. they don't think the asset is 'worth' what they paid for it), but rather because they want to be long in an appreciating market. They believe that when the time comes they can find the required 'greater fool' to buy the asset and allow them to exit and take their profits.

A capitalist economy cannot be maintained if it oscillates between threats of an imminent collapse of asset values and employment and the threats of accelerating inflation and rampant speculation, especially if the threats are sometimes realized.

Hyman Minsky, Stabilizing an unstable economy, offering some advice that was predictably ignored before 2008, which is still being ignored. The longer the 'game' goes on the more these investors/speculators will get nervous and start jumping at shadows. Anybody know what's happening to the price of agricultural land?

[Edit: typ0]

Edited July 12, 2013 by ChairmanOfTheBored

[Eddie_George]

Obama doesnt have the cojones or the will to take it on the chin...although now would be a good time to stop the nonsense, as Obama cant get re-elected this time around.

Good point, but he has his place in history to write.

[zugzwang]

Doesnt it just sit in 'excess reserves'?

Sure isnt making the velocity/money multiplyer budge upwards.

The money multiplier is a neoclassical fiction. Neoclassical economists believe that debt-money is first created by a central bank then multiplied by commercial lenders using fractional reserve banking. In practice debt-money is created endogenously by commercial lenders who then look for reserves on the wholesale market if they need them, ultimately turning to the central bank as lender as last resort. This occurred on an epic scale in 2008.

The QE cash ends up as excess reserves at the central bank but it does a lot of work on the way back there. The accusation that the central banks are printing money is essentially true but since the QE cash is to used acquire treasuries and MBS from commercial lenders then debt-money is being extinguished at the same time as it's created. If the central bank doesn't issue new securities pound for pound equivalent to QE, or pays more for the securities it buys than the margin used to acquire them then the money supply goes up. If some players are concurrently selling securities and liquidating the margin used to acquire them then the money supply goes down. For instance, US money supply grew at a rapid pace through most of 2009-11 but flatlined in 2012 as big banks and other players began to liquidate their treasury holdings. It started growing again at the end of 2012 when Benny initiated QE eternity.

Commercial lenders use the profit they make from QE to speculate on stocks and commodities etc, or to underwrite their lending activities, or to provide margin for their biggest hedge-fund customers... to speculate on stocks and commodities etc.

[ParticleMan]

Really? To me it looks like they're going to taper towards the end of the year, and that this stock market rise is illusory.

Speaking of forward guidance...

http://www.bloomberg.com/news/2013-06-18/obama-says-bernanke-fed-term-lasting-longer-than-he-wanted-1-.html

President Barack Obama said Federal Reserve Chairman Ben S. Bernanke has stayed in his post “longer than he wanted,” one of the clearest signals the central bank chief will leave when his current term expires next year.

I doubt the Fed will do much of anything concrete until then* (and especially not taper, when the real world and the synthetic derivatives of the monetary world are both screaming wholesale demand collapse).

I happen to agree that the stock market rise is illusory, but it'll be a good old fashioned earnings slump that knocks the wind out of it later in the year.

In the mean time, as someone once observed - that which we call a dividend** by any other name would smell as sweet.

(* after all, blowing up the Fed on your way out the door would scarcely be positive for your subsequent prospects on the lecture or literary circuit - let alone your career outlook as a fixed income analyst)

(** for those passengers wishing to adjust their watches, local time on the ground is "that age is best which is the first, when youth and blood are warmer")

Edited July 13, 2013 by ParticleMan