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Taper Talk is Back - It's Not Going Away This Time

Bruce Krasting's picture




 

 

The capital market for new issues and refinancing of corporate debt has been on a tear the past few months - I think that ended yesterday. That's because the dreaded Taper Talk has resurfaced. The Fed minutes yesterday rekindled Fear of Taper.

The Taper On/Taper Off story has been with us for six months now. It started in May with the release of the Fed minutes and the first "whisper' of the Taper. The talk of the Taper reached a zenith in late September as the debt markets were convinced that Bernanke would start the Taper in October. It was a big surprise to players when Good Ole Ben chose to delay the October start and push it to sometime in the future; and now it's back.

 

novembertaper

 

An interesting consequence of Taper Talk is how it affects the Corporate new issue bond calendar. The following chart shows how talk of taper killed the ReFi market in June/July/October, and it also shows how the window for new issues opened right after Big Ben delayed the taper for a few months. Up until yesterday the corporate finance types and bond dealers on Wall Street were having a daily party. As of today, they will be back to struggling to push deals out the door.

 

reuters

 

My read of this is that the debt market does not work well unless there is the perception of QE -4 ever. The capital markets freeze up whenever the threat of a disruption of the $85B of grease the Fed provides every month arises. When the capital markets are working well, the deal flow is there, and this is good for the economy. When there is Taper Talk the refinancing gears get gummed up, and it acts like a drag on the economy.

There is no doubt in my mind that Yellen is going to push off the Taper for as long as she can. But even the Great Dove can't push the Taper off for too long. I think that Yellen will be forced to initiate a Taper by March. That suggests that there is a four month window before the actual event, but I don't think the Taper Talk is going to subside as it did in October/November. The Talk of the Taper will be with us (and the closing of the refinancing window) for months. As a result we are going to see a pause in the up move in equities and a closing of the bond window. This will translate into an economic drag. Whatever your forecast of 4th Q and 1st Q growth were on Tuesday, you should mark them down a bit today.

QE is the lubricant of the system. But when it is ended (or threatened to end) it causes pain. We've had five years of grease, now we are going to have to pay a price. My guess is that this new round of Taper Talk is going to hurt pretty bad. The reason is that there is next to no basis to believe that QE can be continued beyond a few more months. The Taper sign is now on, it will remain on until the talk is turned into action. When the Taper Talk sign is on, beware. The sign is now brightly lit.

 

tapersign

 

 

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Fri, 11/22/2013 - 07:28 | 4180631 Bruce Krasting
Bruce Krasting's picture

Thanks for all these comments folks. Many of you called me out with my stating that QE had to end, and it would end in 2014.

That is my belief. I don't think the Fed can continue this insanity much longer. It is already $3T and climbing.

We shall see - I maintain that a taper (the starting point of reducing monthly QE) is with us by March.

bk

Thu, 11/21/2013 - 14:54 | 4178329 Big Ben
Big Ben's picture

And why is Yellen going to be forced to taper?

Consumer inflation (as measured by the Fed) is tame. Unemployment is still very high. Interest rates are already rising, and tapering would increase this trend. Yellen was appointed precisely because she is a dove. Obama and the Senate are not going to pressure her to taper. What is going to force her to taper?

Thu, 11/21/2013 - 14:54 | 4178326 lindaamick
lindaamick's picture

Taper Talk is a requirement needed to keep volitility in the stock market.  Volitility ensures profits for HFT.

Thu, 11/21/2013 - 14:34 | 4178225 disabledvet
disabledvet's picture

"in the future" this and "because of blah-blee-blah" that. for a moment we entered "the realm of the data" the other...back into the twilight we are to go. inflation? deflation? flation? which is it? and now we know...we has MANIPUFLATION...the theory "yet again" that "prices only move in one direction" and "we are the all knowing/all seeing God to be listened to/explainer there-of" in order to understand "the real reality." ah, the preferred existence....the comfortable truth that "the end is near" rather than the uncomfortable truth..."our end is near!" the more a lie is repeated folks the more it becomes...we become...basically irrelevant...just a place with a point of view..."jingoists for something bright and shiny." well to that I say "whoopdy doooo." it's not that "it" (what is said) doesn't matter be WE as the people saying it don't matter. at some point the "folks at large" hit the refresh button. that's the nature of the beast...and this is the beast we're in. We're MEDIA. "the world of Zero Hedge." meh. to be relevant in any context and not just a conduit for some point of view...to have a message and then have it be heard...you better start dealing in the context which are in fact in. why are CNBC's ratings in the dumpster? they're talking finance on television! hahahahaha. really? "what's the plan?" simple: "MANIPUFLATION." prices are moving higher...straighten up and fly right mister. most important "listen to MEEEE." (provided you if ore the data and the way he real world in facts works/is.) ridiculous. I'm on "the Internet" to get some truth...I've got google...screw you I'd that pisses you off. think I don't matter nor does "my view"? take a good hard look at the numbers...tell me they're lying, tell me "it's all made"...feed me s story about how "standing behind all this is a Cabal" when in fact all it is is some clown behind a curtain "throwing levers and pushing buttons" telling you to "follow the yellow brick." sorry but I'll take the movie over the monstrosity...maybe even to the point where the monstrosity is true. at risk of "meaning" I'll follow the girl from Kansas" no on talks about but everyone knows is there and not the friggin propaganda about "Daddy-O."

Thu, 11/21/2013 - 23:38 | 4179996 Carpenterman
Carpenterman's picture

That was the best Drunk Uncle imitation ever! Superb.

Thu, 11/21/2013 - 14:28 | 4178142 Pullmyfinger
Pullmyfinger's picture

...print; taper, crash, print; taper, crash, print; tapir, crash, print.. til there's nothing left. A strategy of 'pump and dump' played out on the largest possible scale.

..and by the way, as the market is crashed, guess who will be insider shorting the market and making billions on the way down?

Tapering-as-wealth-transfer to expand the powers of the elite at the expense of the middle class. Crazy idea, no??

Wakey, wakey, eggs and bacey.

Thu, 11/21/2013 - 14:15 | 4178133 novictim
novictim's picture

This time it is always differerent. 

Thu, 11/21/2013 - 14:12 | 4178125 damicol
damicol's picture

There will be no taper. Period. not now not ever.

 

Anyone who believes there will is as deluded as the Whitehouse monkey. And for good reason, all based in maths.

It is fact as impossible to taper as it would have been for that other black cretin mugape to taper his printing..

It started and it went on until it exploded. You cannot ever go back because the maths of running a ponzui scheme do not allow any formula or condition to put the genie back in the bottle.

 And the main reason is this.

 It is the increase, the natural increase over time, usually very slow, very very occasionally goes into reverse but only for abnormally short periods, the increase in size of transaction.

Every single event in a financial context can have one of two possiblities, one that is is larger than the last transaction or smaller.

 It it ever reaches a point where it is the largest transaction then by definition every prior transaction was smaller  and so the next transaction has the biggest probability of being smaller too.

 But that is not guaranteed. and the balance of probability may weigh that way  but there is still the open chance at some point and using probabity theory it will tell you over what time scale that event will have a probabilty of 0.5

There is always a probability that  a larger trasaction will take place.

 Well this  fucking funny money certainly increased transaction sizes relative to overall risk profile

 an average of over two hundred times 2006 levels

Unfortunately if you look at the scale sizes of finacial transactions in the bond market today the average   wieghted as a measure  between the different risk classes of all bonds relative to each other, that size is now averaging during 2103 over  200 times the size of the average of 2006.

which didnt change more than 0.03 % over the whole of 2006

Now it never moves less than 0.5% in any given day and averages over 2%

Yopu cant downsize a trillion dollar note back to a billion dollar note..

 

 Ask mugape.

 ask the Germans   ask the Argentinians

 

 They tried and every single time in history it failed.

 

 Simply because you cannot reduce in any way the transaction size. Any attempt would  make the whole thing start to swing   and become wildly unstable  over time. like falls of 70% one day and rises of 150% the next and then falls of 95% the day after.

Cannot be done.Not on any form of ongoing basis.

Unless of course some alien or some other relative of the monkey actiually handed him  a couple of hundred trillion and said keep it, its yours.

The Fed would be bankrupt in a month if they tried that and they know it too.

 

 

 

 

Thu, 11/21/2013 - 14:12 | 4178123 damicol
damicol's picture

There will be no taper. Period. not now not ever.

 

Anyone who believes there will is as deluded as the Whitehouse monkey. And for good reason, all based in maths.

It is fact as impossible to taper as it would have been for that other black cretin mugape to taper his printing..

It started and it went on until it exploded. You cannot ever go back because the maths of running a ponzui scheme do not allow any formula or condition to put the genie back in the bottle.

 And the main reason is this.

 It is the increase, the natural increase over time, usually very slow, very very occasionally goes into reverse but only for abnormally short periods, the increase in size of transaction.

Every single event in a financial context can have one of two possiblities, one that is is larger than the last transaction or smaller.

 It it ever reaches a point where it is the largest transaction then by definition every prior transaction was smaller  and so the next transaction has the biggest probability of being smaller too.

 But that is not guaranteed. and the balance of probability may weigh that way  but there is still the open chance at some point and using probabity theory it will tell you over what time scale that event will have a probabilty of 0.5

There is always a probability that  a larger trasaction will take place.

 Well this  fucking funny money certainly increased transaction sizes relative to overall risk profile

 an average of over two hundred times 2006 levels

Unfortunately if you look at the scale sizes of finacial transactions in the bond market today the average   wieghted as a measure  between the different risk classes of all bonds relative to each other, that size is now averaging during 2103 over  200 times the size of the average of 2006.

which didnt change more than 0.03 % over the whole of 2006

Now it never moves less than 0.5% in any given day and averages over 2%

Yopu cant downsize a trillion dollar note back to a billion dollar note..

 

 Ask mugape.

 ask the Germans   ask the Argentinians

 

 They tried and every single time in history it failed.

 

 Simply because you cannot reduce in any way the transaction size. Any attempt would  make the whole thing start to swing   and become wildly unstable  over time. like falls of 70% one day and rises of 150% the next and then falls of 95% the day after.

Cannot be done.Not on any form of ongoing basis.

Unless of course some alien or some other relative of the monkey actiually handed him  a couple of hundred trillion and said keep it, its yours.

The Fed would be bankrupt in a month if they tried that and they know it too.

 

 

 

 

Thu, 11/21/2013 - 14:10 | 4178108 jomama
jomama's picture

the fed will never taper. 

even myself, an economic moron, knows that.

Thu, 11/21/2013 - 14:08 | 4178103 optimator
optimator's picture

Only a fool would think they'd let us know before they took their profits.

Thu, 11/21/2013 - 13:41 | 4177964 bourbondave
bourbondave's picture

Forced by what?  What will force her to taper in March?

Thu, 11/21/2013 - 13:29 | 4177902 QQQBall
QQQBall's picture

Taper Talk Kills refi market. Everyone who needs to and can has refi'ed; higher rates will kill the refi market going forward; not TALK.

Thu, 11/21/2013 - 13:29 | 4177898 BullyBearish
BullyBearish's picture

Maybe the Taper talk is real this time...RGR at all time highs and going through the roof!!!!!!!!!!!

Thu, 11/21/2013 - 13:25 | 4177872 QQQBall
QQQBall's picture

TALK - the Greenspan model....

Thu, 11/21/2013 - 13:24 | 4177853 lasvegaspersona
lasvegaspersona's picture

This economy and our society (like all other societies) cannot and will not tolerate pain. If (as was suggested 2 days ago by Marc Faber) some brave soul does initiate the pain cycle they will be dealt with severely. If Yellen tapered she would no longer be the darling she is now. We will learn she is really a monster etc. etc.

It is in the nature of our humanity to avoid and postpone that which can easily be put off. With a fiat currency things can always be put off. They will of course come tumbling down and create a horrible mess far worse that had it been dealt with earlier but that won't matter. 

There might be 'a' taper but that is not the way this will end. It will end in a hyperinflatinary event....like it always does.

Thu, 11/21/2013 - 13:47 | 4178009 MyBrothersKeeper
MyBrothersKeeper's picture

I disagree it will end with hyperinflation.  It will end with default in Europe or Japan and contagion will engulf the world economy....and then war will be the result of that.

Thu, 11/21/2013 - 13:21 | 4177841 moneybots
moneybots's picture

"QE is the lubricant of the system. But when it is ended (or threatened to end) it causes pain."

 

Cart before the horse.  QE causes pain.  Bursting a bubble does not cause pain, building the bubble causes pain.  Can't burst a bubble that does not exist.

Thu, 11/21/2013 - 13:01 | 4177720 Teaser
Teaser's picture

There will be NO taper. EVER.  In fact, in March, I predict Yellen increases the buying from 85 Billion to 115 Billion.

I was one of the people who was unsurprised by them no-taper.  I will also be the unsurprised one when the bond buying spree INCREASES.

There is NO other way forward for the Fed.

 

If, for example, Yellen DID taper in March, what would happen?  Immediate removal from her position.  This would be an ovewhelming bi-partisan effoert also.  Because if taper were to ever happen, the depression that would ensue would make any previos depression ever look like a mild hiccup.

I like Bruce, I like reading his articles, but now I just fade his point of view each time he posts.

Thu, 11/21/2013 - 14:10 | 4178115 Pullmyfinger
Pullmyfinger's picture

I must disagree on a number of levels. Due to the inherent catch-22 circumstances in which the whole western monetary system finds itself --and especially paradoxical to the Fed itself--  it is now become far more important for them to defend the bond market, than to maintain the illusion of prosperity via the stock market.

Ultimately, you are of course correct. They will still end up pumping money to the moon during the next iteration. However, at this time, with the ten-year so close to passing above 3%, it has become adamantly necessary that these guys turn to stampeding as many as they can out of equities and into bonds as is possible, and damn the deflationary consequences (being the lesser of two evils)

How much higher did you realistically expect they could juice the DOW at this juncture? It is also excruciatingly vital for them that they keep up the suppression on precious metals, being part of the commodities/equites market, thus a dramatic stock market crash --however temporary the results-- due to a decisive taper, would thus push money into bonds and lower precious metals even further. Almost a two-fer, if it wasn't so pathetically and transparently desperate. Few people realize just how close these guys are to losing their grip on the whole shebang --which is precisely why the whole game is down to 'damned if they do, and damned if they dont.'

Quoth the tapir, "nevermore" ...

 

 

Thu, 11/21/2013 - 14:39 | 4178252 Teaser
Teaser's picture

they can also 'defend' the treasury yield buy increasing buying, yes?

Hence why my position is that more printing, never less, is coming.  Eventually, the Fed will BE the bond market.  It's damn close to that now, anyway,

Thu, 11/21/2013 - 13:36 | 4177937 Blano
Blano's picture

So buy March/April calls?

Thu, 11/21/2013 - 12:59 | 4177710 RafterManFMJ
RafterManFMJ's picture

Why hasn't anyone mentioned BitCoin in this thread yet?

Thu, 11/21/2013 - 12:34 | 4177563 BullyBearish
BullyBearish's picture

Isn't it ALL about jawboning now?  The financial wizards in the market are whipsawed whichever way the FED wants: things are heating up, talk taper...things are slowing down, talk accomodation.  Here are the facts as we think we know them:

1. They're printing at least $85B/month

2. ZIRP is in place

3. The FED will NOT allow the market to correct, only mildly pullback

They will stairstep while jawboning for longer than our patience can last...

Thu, 11/21/2013 - 12:30 | 4177547 silentboom
silentboom's picture

There will be no taper!  First it was exit, then it was taper, then it was no taper, now it's a rumor of taper.  Absurd.  This ship is going full iceberg.

Thu, 11/21/2013 - 12:13 | 4177470 DR
DR's picture

Taper starts along with an anticipation of rising rates. Housing tanks, the US stock market corrects  and corporate financing dwindles. The US economy goes into a recession as real rates stay high. Europe and Japan follows the US into recession. The true, poor long term economic condition of the US is exposed.

 

Thu, 11/21/2013 - 12:07 | 4177444 oak
oak's picture

with taper, the velocity of money would drop more.

http://research.stlouisfed.org/fred2/graph/?id=M2V

Thu, 11/21/2013 - 12:07 | 4177447 the grateful un...
the grateful unemployed's picture

can money velocity go negative? i think it can

Thu, 11/21/2013 - 14:29 | 4178200 ATG
ATG's picture

Sure it can, since Velocity is the ratio of GDP to Money Supply

 

http://research.stlouisfed.org/fred2/series/MZMV?cid=32242

 

Shadow Stat GDP is currently -1.8%

 

http://www.shadowstats.com/alternate_data/gross-domestic-product-charts

Thu, 11/21/2013 - 13:31 | 4177907 QQQBall
QQQBall's picture

Could you explain how that happens?

Thu, 11/21/2013 - 14:42 | 4178271 the grateful un...
the grateful unemployed's picture

the monetary base would be shrinking faster than people were holding or hoarding money? i don't know, money can disappear, (you think of all the leverage, and margin calls, when it starts imploding)

Thu, 11/21/2013 - 13:42 | 4177972 Papasmurf
Papasmurf's picture

Margin calls would cause negative velocity.

Thu, 11/21/2013 - 11:55 | 4177394 LawsofPhysics
LawsofPhysics's picture

Taper, and stop destroying savers as well as end the wealth transfer from the middle class to the top 1%?

I'll believe that when I see it Bruce.  Capitalism implies a respect for capital.  We haven't had that in the U.S. since 1971, maybe 1913.

Thu, 11/21/2013 - 13:07 | 4177748 Flakmeister
Flakmeister's picture

What conclusion do you draw from these two figures:

http://en.wikipedia.org/wiki/File:US_Crude_Oil_Production_and_Imports.svg

and the first figure here

http://goldnews.bullionvault.com/US_gold_reserves_01120092

Looks to me that Tricky Dick said no mas before it was all gone...

Thu, 11/21/2013 - 13:55 | 4178035 LawsofPhysics
LawsofPhysics's picture

Doesn't change the energy equation one bit on earth (and america is now part of europe whether we like it or not), global energy available for consumption is all that matters now.

Thu, 11/21/2013 - 11:54 | 4177383 awgee
awgee's picture

I have a few questions that I hope someone can answer:

Are the mortgage securities that the Fed is buying every month new mortgage securities, or are they the old toxic derivatives that the banks needed to get off their books?

Is the Fed actually buying the MBS, or are they just taking it as collateral for loans?

Please correct me if I am wrong, but it seems that the "money" used to buy the MBS and the treasuries every month is being deposited at the Fed as excess reserves, thereby avoiding the larger economy and not affecting CPI and other inflation measures.  If that is correct, why can't the Fed just keep on buying or loaning?  Also, if it is correct, why can't the banks use these excess reserves to pay back the Fed any money they have borrowed thereby having a continued non-effect on inflation measures?

Thu, 11/21/2013 - 14:36 | 4178238 ATG
ATG's picture

Only when banks start lending to the middle class more than the economy is contracting

Auto companies did their bit with ZIRP leases and loans

Costs inflating at 8% 1980 method rate = no consumer savings to invest

http://www.shadowstats.com/alternate_data/inflation-charts

Thu, 11/21/2013 - 11:59 | 4177419 Vooter
Vooter's picture

Well, why don't we just create more "excess reserves" and give every person on Earth a quintillion dollars? Does that answer your question?

Thu, 11/21/2013 - 12:17 | 4177492 awgee
awgee's picture

No, it does not.  "give every person a quintillion dollars" is a straw horse.  This is a serious question and needs no hyperbole.  If the money ends up as excess reserves at the Fed, it does not flow into the economy creating inflation.  And if it does not create inflation, why can't the Fed continue with no inflation effects on the economy?

 

And it is not "we" who are creating excess reserves.  It is the banks and the Fed.  We have no say so.  But, the question remains, why can't the Fed continue QE and continue to increase excess reserves?

 

And ultimately, why can't the banks use those funds to pay back the Fed the money they borrowed, which would keep that money from entering the larger economy?  Can the Fed drain the excess reserves without causing currency devaluation?  Since it was money created by the Fed, it seems it could become money destroyed by the Fed, thereby enriching the banks and having little to no effect on inflation.

Thu, 11/21/2013 - 14:58 | 4178349 Winston Churchill
Winston Churchill's picture

Hyperinflation is caused by a political loss of connfidence in leadership, not money

velocity/printing per se.

Obozocare was designed by the same ivy league academic types that run the FedRes.

That total loss in confidence is fast approaching now.No matter what the FedRes does

at this point.All this is navel gazing ,  you will find  lint at best.

Be prepared.

Thu, 11/21/2013 - 14:38 | 4178249 ATG
ATG's picture

Giant unproductive circle jerk

Thu, 11/21/2013 - 13:27 | 4177889 moneybots
moneybots's picture

"And it is not "we" who are creating excess reserves.  It is the banks and the Fed.  We have no say so.  But, the question remains, why can't the Fed continue QE and continue to increase excess reserves?"

 

As Denninger noted, everything is a balance sheet.

Thu, 11/21/2013 - 12:48 | 4177627 Vooter
Vooter's picture

"If the money ends up as excess reserves at the Fed, it does not flow into the economy creating inflation.  And if it does not create inflation, why can't the Fed continue with no inflation effects on the economy?"

Because we don't live in Magic World, where you can simply and painlessly get something for nothing. Did you think I was NOT being serious with my previous post? If the fact that the U.S. government and the Federal Reserve think they can simply and literally conjure up these wonderful "excess reserves" out of thin air doesn't raise any red flags with you, then I can't help you. Do you REALLY think that what the Fed is doing is anything other than a completely desperate, bogus, and rogue operation? What else could it possibly be? I hate to break it to you, but 2 + 2 STILL doesn't equal 5...

Thu, 11/21/2013 - 13:11 | 4177765 awgee
awgee's picture

I assure you, it is likely that I think much worse of the Fed than you, but I like to deal with reality.  I do not think that anyone can get something for nothing, but I can not deny reality that the Fed has found a way to keep the money received by the banks from entering the economy.  You may be serious, but if you introduce nonsense your answer has no credibility.  Of course it raises red flags, but I am trying to figure out what the real consequences will be, not my wishes or emotional blathering.  No one is trying to make 2+2=5, in fact quite the opposite.

Rather than introduce straw horses, let us try to answer the question.  So far the Fed has been successful at keeping QE from causing mass currency devaluation, (inflation).  Non-acknowledgement of the facts is living in a Magic World.  I have heard, and have been a part of, folks screaming that QE will result in hyperinflation.  So far it hasn't.  That is a fact.  The Fed has been successful at keeping the QE money from being introduced into the economy which would result in inflation.  What is to keeep the Fed from continuing in that vein.  Screaming that it will result in hyperinflation when it has not, is not dealing with reality.  I make money by dealing with reality, even if it does not fit my previous paradigm.

Thu, 11/21/2013 - 15:26 | 4178506 tired_of_manipu...
tired_of_manipulation's picture

awgee - this link might help answer your question:

http://www.zerohedge.com/news/2013-09-22/what-shadow-banking-can-tell-us-about-feds-exit-path-dead-end

The key point is that reserve deposits can only be transfered to entities entitled to hold Fed accounts.  In modern finance all money is actually debt - a promise to be paid something.  Govt bonds function like money in the financial system -- they can be used as collateral just like bank reserves, and can be rehypothecated ad infinitum. For the financial system bonds are actually more liquid than reserves at the Fed -- shadow banking can use bonds but it can't use deposits at the Fed.  Perversly, QE may actually be reducing the money supply as shadow banking unwinds.

That said, the banks that hold the newly minted reserves aren't sitting on them.  The reserves can't be released into the wild, but it can be used to back up their prop trading desks -- JPM used it's reserves to back the London whale trade.  

So the net effect of QE has been to draw away liquidity from shadow banking where it would grease the economy, and divert it into purchasing financial assets.  So the economy and employment struggle because small businesses can't get loans, while financial markets reach all time highs on expansion of earnings multiples.  The inflation is confined to financial assets, while everyone else sees deflation outside of things like food and energy where bad policy (ethanol?) and growth in China/BRICS seems to be driving inflation.    

Thu, 11/21/2013 - 13:18 | 4177817 Vooter
Vooter's picture

"The Fed has been successful at keeping the QE money from being introduced into the economy which would result in inflation."

WHERE DO YOU NOT SEE INFLATION? Seriously--make a list of all of the things that have gone up in price over the last year, or decade, or three decades, and then make another list of all of the things that have gone down in price over those same time periods, and see which one is longer. I see inflation everywhere, but I guess I'm just a dirt-eating prole whose definition of "inflation" doesn't jibe with the lovely, sterile definition that our Princeton-educated masters like to use. So again, seriously, where are you not seeing inflation?

Thu, 11/21/2013 - 13:20 | 4177838 awgee
awgee's picture

forget it.

Thu, 11/21/2013 - 14:34 | 4178226 acetinker
acetinker's picture

Maybe it's so simple that it's hard to comprehend.  I'm no economist, but it seems to me that all QE really does is replace what the tapped out US consumer isn't "creating" with more debt.  it's not that money is "parked" somewhere, rather we've had no hyperinflation because $85bn/mo. is simply being absorbed by banks to cover losses on bad loans.  jmho.

Thu, 11/21/2013 - 14:20 | 4178160 g speed
g speed's picture

pretend that the banks don't want to hold reserves but spend on assets that somehow start to rise in value (global QE -every central bank prints)----how will the Fed prevent those reserves from entering the system--by negitive rates. How negitive can rates go? whats the end point where the Fed can't QE enough to pay the banks to not spend reserves on rising assets? Is the Fed in control? Are rates in control? Are asset prices in control? Thats why the Fed will taper-because it's losing control. It will raise reserve requirements to hold reserves in the banks and then start to taper. The treat of inflation is directly tied to the banks releasing reserves into the market economy.  IMHO--

Thu, 11/21/2013 - 14:34 | 4178227 g speed
g speed's picture

as far as MBS are concerned they are becoming scarce--- others on here have suggested the next QE will be buying Packaged student loans. The Fed will buy the bad loans and the proceeds (QE) will become reserves and again the problems will compound. There has to be bigger and bigger debt to colateralize QE-- MBS, Student debt, auto loan backed securities, etc are the fodder for QE--or Tbills, but the gov't has to spend for that to happen. The Q has been raised on here "what hapens when the Fed owns it all" the answer is it can't buy anything else--end of QE.

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