Can Endless Quantitative Easing Ever End?

Tyler Durden's picture

Authored by (and originally posted at) Detlev,

Bubble trouble: Is there an end to endless quantitative easing?

The publication, earlier this week, of the Federal Reserve’s Federal Open Market Committee minutes of January 29-30 seemed to have a similar effect on equity markets as a call from room service to a Las Vegas hotel suite, informing the partying high-rollers that the hotel might be running out of Cristal Champagne.  Around the world, stocks sold off, and so did gold.

Here is the sentence that caused such consternation:

“However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases (the Fed’s open-ended, $85 billion-a-month debt monetization program called ‘quantitative easing’, DS). Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behaviour that could undermine financial stability.”

Here is how one may freely translate it: “Guys, let’s face it: All this money printing is not without costs and risks. Three problems present themselves:

1) The bigger our balance sheet gets (currently, $3trillion and counting), the more difficult it will be to ever load off some of these assets in the future. When we start liquidating, markets will panic. We might end up having absolutely no maneuvering space whatsoever.

2) All this money printing will one day feed into higher headline inflation that no statistical gimmickry will manage to hide. Then some folks may expect us to tighten policy, which we won’t be able to do because of 1).

3) We are persistently manipulating quite a few major asset markets here. Against this backdrop, market participants are not able to price risk properly. We are encouraging financial risk taking and the type of behaviour that has led to the financial crisis in the first place.”

All these points are, of course, valid and excellent reasons for stopping ‘quantitative easing’ right away. Readers of this site will not be surprised that I would advocate the immediate end to ‘quantitative easing’ and any other central bank measures to artificially ‘stimulate’ the economy. In fact, the whole idea that a bunch of bureaucrats in Washington scans lots of data plus some anecdotal ‘evidence’ every month (with the help of 200 or so economists) and then ‘sets’ interest rates, astutely manipulates bank refunding rates and cleverly guides various market prices so that the overall economy comes out creating more new jobs while the debasement of money unfolds at the officially sanctioned because allegedly harmless pace of 2 percent, must appear entirely preposterous to any student of capitalism. There should be no monetary policy in a free market just as there should be no policy of setting food prices, or wage rates, or of centrally adjusting the number of hours in a day.

But the question here is not what I would like to happen but what is most likely to happen. There is no doubt that we should see an end to ‘quantitative easing’ but will we see it anytime soon? Has the Fed finally – after creating $1.9 trillion in new ‘reserves’ since Lehman went bust – seen the light? Do they finally get some sense?

Maybe, but I still doubt it. Of course, we cannot know but my present guess is that they won’t stop quantitative easing any time soon; they may pause or slow things down for a while but a meaningful change in monetary policy looks unlikely to me.

The boxed-in central banker

I think that in financial markets and in the press the degrees of freedom that central bank officials enjoy are vastly overestimated. I consider central bankers to be captives of three overwhelming forces:

1) Their own belief system which still holds that they are the last line of defence between dark and inexplicable economic forces and the helpless public, and that therefore, whenever the data or the markets go down, it is their duty to ride to the rescue. Thus, when the withdrawal of the Cristal, whether actual or only prospective, dampens the party mood, the Fed will soon feel obliged, by its own inner logic and without any motivation from outside influences, to open another bottle. Just wait until the present debate about an end to QE leads to weaker markets and until, in the absence of the diversion from rallying equity markets, the almost consistently uninspiring ‘fundamental data’ becomes the focus of attention again, and we will witness another shift in Fed language, again back to ‘stimulus’. We had these little twists and turns a couple of times without any major change in trend. Anybody remember the talk of ‘exit strategies’ in the spring of 2011?

Of course, like most state officials, central bank bureaucrats are largely preoccupied with the problems of their own making. It is precisely the Fed’s frequent rescue operations that have created the dislocations (excessive leverage, asset bubbles) which cause instability and repeated crises in the first place. However, there are no signs anywhere that, intellectually, the Fed is willing and able to break out of this policy loop.

2) The size of the dislocations, which are – as I just explained – largely central-bank-made and now, after years and years of Greenspan puts and Bernanke bailouts and zero-interest rates, still sizable in my view, maybe as large as ever. The Wall Street Journal reported that total borrowing by financial institutions is down by about $3 trillion from its all-time high in 2008. That’s the widely heralded ‘deleveraging’. But does that mean that the current level of about $13.8 trillion is a new equilibrium? The Fed’s balance sheet expanded by almost $2 trillion over the same period, and super-easy monetary policy has provided a powerful disincentive for banks to shrink meaningfully. What is truly sustainable or not, will only be discernible once the Fed stops its manipulations altogether and lets the market price things freely. My guess is that we would still have to go through a period of deleveraging and probably of headline deflation. This would be a necessary correction for a still unbalanced economy addicted to cheap credit but nobody is willing to take this medicine.

3) Politics. Falling stocks, shrinking 401K-plans, and shaky banks don’t make for a happy electorate. Additionally, the state is increasingly dependent on low borrowing costs and central bank purchases of its debt. The chances of the US government repairing its own balance sheet look slim to non-existent so dependence on ultra-low funding rates and the Fed as lender of last resort (and every resort) will likely continue.

Look at Japan

When it comes to any of the major trends in global central banking of the past 25 years, Japan has consistently been leading the pack. It had 1 percent policy rates for years in the mid 1990s when such rates were still deemed exceedingly low in countries like the US, and when the global community still looked upon them in disbelief – and growing annoyance at the small pay-off in terms of real growth. Japan was the first to have zero policy rates and the first to conduct ‘quantitative easing’, albeit on an altogether smaller scale – thus far at least – than some of the Western central banks managed since 2008. Now the country seems to point the way towards the next phase in the evolution of modern central banking: the open and unapologetic politicization of the central bank and the demotion of the head central banker to PR man.

Any pretence of the ‘independence’ of central bankers has been unceremoniously dumped in Japan. Ministers take part in central bank meetings and give joint statements with central bank governors afterwards. New Prime Minister Shinzo Abe has made it very clear what he wants the central bank to do (print more money faster, devalue the Yen, create inflation) and to that end he is looking for a new central bank governor. Of course, only accredited ‘doves’ need apply. A few days ago, Mr. Abe also spelled out what skill-set he is really looking for: good marketing skills. Salesmanship.

“Since we all have our national interests, sometimes, there will be criticism about the monetary policy we are pursuing. The person needs to be able to counter such criticism using logic.”

The course of monetary policy is pretty much fixed. Now it is all about marketing.

In the meantime, the debasement of paper money continues.

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tallen's picture

Gold opens down after UK downgraded and BOJ appointing the king of money printing. Something doesn't smell right. Can the endless manipulation of gold ever end?

rbg81's picture

The thing that allows the Central Bankers to do what they are doing is that they are ALL doing it.  And most importantly, the fact that the FED is doing it gives them all cover.  This is not a surprise as, fundamentally, they are all in the same place:  aging populations, ridiculous levels of unfunded obligations, and no real growth.  In fact, the only people causing growth are immigrants who are currently TAKING more in social services than they are giving in taxes.  And that's before the cultural damage is factored in.  


Its a fucking mess, so why not print play $$ to paper it all over?  But it only works if they all do it.  And those outside of the club have no choice but to take it:


  • For the East (particularly China):  They need to grow, so they need to export.  They play along because the alternative is massive unemployment and, likewise, social upheaval.  Also, even while its Monopoly $$, it helps them catch up with the West from a military/technological standpoint.
  • For the Oil Producers:  They are in the same boat.  The minute the petrol dollars stop, they will have to contend with their own restive populations


kaiserhoff's picture

Right now, in Central Florida, anyone who can fog a mirror can buy an almost new house for $99.00 down.  It is far easier and less expensive to buy a house than to rent one.  That will end well, right?  Ben's high crimes and misdemeanors are continuing.

When you have a tiger by the tail, it's no fun to let go, so what do you do?

espirit's picture

Banksters go to the same schools as Gangsters, so their ideologies are much the same.

When they go out, they'll take as many with them as they can.  It would be better if they just swallow a bullet already.

icanhasbailout's picture

Mises told us how this ends:


There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. -- Ludwig von Mises

SafelyGraze's picture

am trying to work through the article, but on the left of the page some half dressed chick in a purple thing wants to know if I could join her for a roman orgy.

damned targeted advertising

I guess these ads will continue to haunt all of us who were at davos

espirit's picture

And I thought I was the only one that got ads from Albanian Dwarf Hookers. 

WmMcK's picture

Let's leave Mother Theresa out of this, OK?

derryb's picture

your displayed advertising is determined by your surfing habits. Got porn?

WmMcK's picture

(A)nyone who can fog a mirror can ... even be a mortgage broker in many markets.

JustObserving's picture

Lies require more lies, fraud requires more fraud.  This manipulation will continue until things blowup.

All In's picture

Gold is up in Sterling.

trebuchet's picture

Everything is up in Sterling today. 

Thank you Mr Gordon Brown, Mr Darling and Mr Osborne. 


Tango in the Blight's picture

Remember that once upon a time you could get one pound of sterling silver for a Pound. Now you can count yourself lucky if you get a turd for it.


GMadScientist's picture

Or the thing that doesn't smell right is the prospects for growth in the world economy and people understand that gold will take a hit when the market dives like a nuke sub.


Croesus's picture

It's all good, just crack open a beer and a bag of chips.....and buy that dip!


new game's picture


What if you were involved with monetary policy decision in china, russia, iran turkey brasil or any country that can see the obvious scam being played with dollar reserve status policy wonks and wanted to accumulate gold in any curency debased price - on the cheap. What would you do?

sHORT THE FUCK OUT OF PAPER GOLD and accumulate physical gold.   Bingo-answers your bewilderment

and until the phys gold run real low, will we see a disconnect.  because nobody know how much gold is at the bottom of lakes and this can go on for a while.

accumulate like the brics


TruthHunter's picture

"Can the endless manipulation of gold ever end?"


Why should it when the manipulators own most of the gold?'s picture

"Does a good thing ever come to an end?  Yes...yes it does"  ---Charles Ponzi

trebuchet's picture

This article is great - except it is assuming the Fed's job has been to protect equity and those types of asset prices which it has not been. 


the author is right about bankig logic  - the will open another bottle of Cristal when a) unemployment goes up b) inflation goes down 

And they will call the party over when unemployment falls. 


The author  is also right that their degrees of freedom are limited : right now the only FEd lever in play is QE: 

Op twist and interest rates committed and ineffective. 

So of course they are now shitting their pants and saying " should we move it up a notch, down a notch, how effective is it? How costly will it be? Can we disengage?" 

Fed also really into the whole Woodford " Fed f*d up communications"  line so what is VERY interesting is ZH article on the trial balloon. 

Fed does think now " if we say economy is crashing/recession" it becomes a self fulfilling prophecy - so we have to LIE .......





francis_sawyer's picture

on a long enough timeline the survival rate for everyone drops to ZERO...

GMadScientist's picture

That timeline only has to be slightly longer than the guy behind you, much like outrunning a bear.


francis_sawyer's picture

In the end ~ If all that's left is the bear & myself... It will be a "GOOD DEATH"


nmewn's picture

I can outrun any bear, I carry a pocket pistol in order to knee cap the guy running beside me ;-)

new game's picture

exc logic - lol

every man for himself...

til the last breathe

TraderTimm's picture

I don't think politicians really care about the electorate, as long as they can garner contributions from deep pockets - who needs the proles? I wish it wasn't like that, but there's little evidence to the contrary.

diogeneslaertius's picture

if your goal is to implode the global economy and bring in a gold-backed RMB linked to the SDRamid mounting synthetic turmoil its a perfect strategy


especially if the marketing goes well because you can string people along indefinitely now


and this is an interesting aspect of the currency wars

that it is essentially, on some level, like a game of chess being played by one man for the sake of understanding how better to control the board itself and for the sake of bringing in a new control paradigm that covers every square


"the thing that allows it to happen is they are all doing it."

easy to perceive as organic conflict or as market forces - but what if these forces are inherently synthetic; that should tell you something that everyone is doing it, as if everyone were merely executing commands handed to them by a single authority


or, to put it another way, its like a bunch of actors reading from a script


GMadScientist's picture

Close, but not quite; an SDR with gold and RMB in the basket along with the usual suspects makes a bit more sense, but people don't have to be reading the same script to be running from the same oncoming shitstorm.


new game's picture

it isn't one big  happy family-some are getting f'd.and have options.  think of it this way, you play by the real market rules and your curency goes strong and you lose export power, now what? join the rigged club of chess players.  russia says no, brasil sorta says no. swiss plays to 1.20 defense. devisions evolve.

iran trades oil for gold. china fights inflation(but deserves it due to the peg)and plays the propaganda game as well as any nation can. on it goes, but at some point in the near future the crumble crumbles and the nation(s) with the soundest base come out winner by war or/and default...

just like wwII-history repeats or at least mirrors. depends where the battle is fought and which nations sits the best post war. gold could be inconsequestial to the outcome...


GMadScientist's picture

I refer you to Mr. Carlin: "It's a big club, and you ain't in it."

I did fail to mention that the SDR will replace the dollar as the reserve currency used to trade the only things that matter (energy and actual resources); this is what Russia and China have been clamoring for year after year.

Iran trades oil for gold. China buys gold (and mines from which to get more gold). India is buying gold hand over fist. See the pattern yet?

ebworthen's picture

The FED would be happy to see us be Japan.

More QE, more cash for the banks and banksters, more money bled out of middle class main street, more austerity for regular people with more FED jizz for Wall Street.

That is why the Central Banks were created:  to benefit banks, banksters, and crony capitalists in league with corrupt politicians.

All Hail the Kleptoligarchy!

All Hail Caesar!

AC/DC "All Hail Caesar"

disabledvet's picture

the Fed as "scipher." clearly if you aren't on the dole with the Government you're not doing the right thing. unfortunately "other Governments are now trying to get to the head of line." i think the Banks have run the tables on this one. Outright municipal bankruptcies appear inevitable now. if oil falls out of bed "look out below." it's hard to imagine bankruptcy with interest rates this low...but because the Fed has forced these rates on the backs of savers and workers simply put "there's no economy anymore." if property values collapse again i think there will be a tax revolt of epic proportions inside the USA. it shouldn't effect the Federal Government per se as the bulk of their tax revenues come from income taxes. i'm hopeful "it's darkest before the dawn" but i really don't think these clowns know what they're doing..and with gold set up for a possible epic fail all assets will need to be re(de?)valued accordingly. i think clearly we need to be on the look out for a Lehman moment here as me being the only guy on the planet who has called this thing since Day One means "there are massive unrealized losses out there" especially as it relates to inflation trading. i do agree that while the equity market is due for a correction i don't agree that this will be a start of a new bear market...yet...

dwdollar's picture

There really isn't anything to be said that hasn't already been said. The paradigm is shifting and many of you are still trading paper backed by good faith from Wall Street crooks. Bernanke will be printing +85 billion USD a month while the stawk market is making new highs and many of you will think that's normal. It's sad and pathetic.

busted by the bailout's picture

"The course of monetary policy is pretty much fixed. Now it is all about marketing."

This is a disappointing conclusion.  It's ALL about marketing?  I thought it was about finding the solution to the three problems mentioned at the beginning of the article.

It's not all about marketing; it's all about what the endgame is going to look like.  And there is no answer here.

Imo, the choices are continued painful inflation, followed by inevitable painful deflation that pushes eventual recovery several more years into the future, OR painful deflation now; followed by recovery that happens sooner.

TPTB have chosen the former up to now, but the consensus may be shifting to the latter.  As Japan and England and others up the ante, it will become increasingly clear, I hope, that we are now on a course to certain disaster from which we must change if we are to survive. 

The pain can't be avoided, only postponed, and I think it is better to take the bitter medicine now, rather than prolonging the agony, which will put us on the road to real recovery sooner.

NidStyles's picture

Collapse is not Deflation, and I really wish people would stop calling it that. Collapse is the loss of confidence in the system.

MoneyThangs's picture

It ain't over till the fat lady sings!

michael_engineer's picture

When you boil it all down, QE just might be a way of reassigning the stuckees paying for a bunch of stuff from the upper classes to the mid and lower classes. It could be that simple.

Notarocketscientist's picture

Agree - crash the system - and the ultra wealthy pick up assets pennies on the dollar.  

Notarocketscientist's picture

The ultra elites i.e. those who control those minions who attend the Bilderberg Conference are positioning for something drastic.

Think about it - 'Liar Loans' - WTF - is anyone going to say that the banks did not know this was going on?  Of course they did - and it surely was ALLOWED to happen. 

- Overpopulation

- Global Warming

- Toxic Air (see Beijing)

- pesky Unions and Middle Classes

- peak CHEAP Oil

- 87% of fisheries dead or in danger

- Peak Everything coming


This list of enormous global problems goes on and on and these ulta elites breathe the same air and drink the same water as everyone else.  And sure than shit they can see that we are headed for a brick wall imminently.  

Could it be that they have put this crisis in motion specifically so that they can make things SO BAD that they can then implement their draconian solutions? 

NidStyles's picture

The same elite that told you that there was Peak Oil and everything else?

Michelle's picture

It seems reasonable to draw that conclusion, but then why keep up the jig with QE, for appearances? If not for QE we'd be experiencing Road Warrior in real life, not just some days, all days.

km4's picture

This was addressed in When The Fed Has To Print Money Just To Print Money with key nugget

The second the Fed enters open deleveraging mode, everyone will sell everything they can to lock in the profits generated from the past 4+ years of Fed balance sheet expansion. Furthermore, at that moment, the market will begin pricing in the unwind of some or all of the $15 trillion in central bank liquidity which is the only reason the S&P is where it is today. The result would be a market crash so epic it would make the market response to Lehman and AIG's failure seem like a walk in the park by comparison.

Therefore the Fed will be in perpetual QE mode going forward or else it will be the Titanic ;)

Waterfallsparkles's picture

I can just see Bernanke watching his personal brokerage statement evey hour.  If the value of his stocks start to decline he just hit the print button really hard, until they come back to even or higher.

espirit's picture

I think he's been sampling his "product" a little too long, and it's clouded his judgement.

buzzsaw99's picture

QE can only be curtailed two ways. Either the budget deficit is brought down significantly or outside demand for overpriced usa treasurys increases dramatically. Neither will happen so logic dictates QE infinity bitchez. It isn't rocket science.

GMadScientist's picture

True; painfully or more painfully.