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Pulling The Plug On QE – Will The Fed Ever Taper?

Tyler Durden's picture





 

Saxo Capital Markets’ latest infographic explores the long-term value of quantitative easing (QE) and, surveying the effect on the US economy, asks whether the US Federal Reserve will ever taper QE.

 

Via Saxo Bank,

The Fed first launched quantitative easing in November 2008 after efforts to boost the economy by lowering interest rates failed. The first programme of QE saw $600 billion injected into the economy by the Fed via mortgage-backed securities and government-sponsored enterprises. This then increased to $1.25 trillion as part of an expansion due to low initial impact. Again, the Fed tried QE in November 2010 with another $600 million invested in longer term Treasury securities. When this still failed to make a great enough impact, Ben Bernanke, chairman of the Federal Reserve, introduced a continuous QE programme, dubbed ‘QE Infinity’, which commits the Fed to buying up bonds at an alarming rate of $85 billion a month.

Quantitative easing, experts once assured us, would inspire the US economic recovery, leading the flagging economy to full health. But will this fiscal stimulus experiment instead drive the US economy to inflation and financial disaster? The Federal Reserve’s decision not to begin a tapering of its asset purchase programme signals a deeper dependency on intangible money printing. Last September’s third round of QE bond purchases were enacted in order to drive down interest rates, allowing businesses to borrow more easily, consequently boosting stock valuations. The QE addiction risks long-term hyperinflation and massive currency devaluation, fuelling market distortions and long-term reliance. Yet tapering may spark a climb in interest rates, prompting further – widespread – financial problems.

Saxo Capital Markets’ infographic draws attention to a mending US economy, with unemployment rates falling to 7.3% - albeit propped up by part-time workers – and Q2 GDP rising by 2.5% in 2013. Can the Fed kick the habit? These indications of growth prompted Bernanke to hint at QE tapering in June of this year, even stating that asset purchases (how the Fed has achieved QE) could come to an end if the US unemployment rate “is in the vicinity of 7%”. You can find more detailed figures, and see graphs of the changes and predictions, by checking the infographic.

Although QE tapering has been suggested, Bernanke has yet to announce a specific date when the artificially-sustained US economy will begin to be weaned off QE. Now, in October, the Fed has said that it will reduce asset purchases in early 2014, but they have laid out no specific timeline for this tapering. The Fed is also reluctant to make changes to Federal rates, announcing that they will remain at their current low levels. It is not until 2015 that they plan to start raising them again. You can see the expected pace of policy firming based on FOMC forecasts by viewing the graph in the infographic – the ‘long term’ forecast is for interest rates to return to 4%, but after how long?

There’s no doubt that QE Infinity has had an effect on a number of financial areas, including market rates. Ten Year US Treasury Yields have almost doubled in the last four months – you can see the visualised growth of US bond yields in the infographic – and this increase in growth could deter the Fed from tapering QE. Saxo Bank’s Head of FX Strategy, John Hardy, believes this may be the case and thinks that QE tapering could be “derailed by a weak US economy that can’t withstand the rise in interest rates we have already seen”.

Equity markets have also rallied in response to QE because the asset purchase programmes have invested money into private companies and their stocks have increased as a result. Savers are also choosing to invest in stocks whilst interest rates are low. When the FOMC decided not to start tapering QE, it meant equity markets continued to increase. You can track the value of the Dow Jones, DAX and FTSE over the last year in the infographic. If QE is encouraging the equity markets increase, will the Fed ever risk tapering?

 

 


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Wed, 10/30/2013 - 13:03 | Link to Comment Zer0head
Zer0head's picture

Will the Fed ever tighten?

Wed, 10/30/2013 - 13:07 | Link to Comment knukles
knukles's picture

Do poops ever not taper?

Unless too much opiates or dead....  Holy shit!*  Maybe there's a message in that!

 

*No I did not make that pun by myself

Wed, 10/30/2013 - 13:19 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Taper now and the system faces a crisis of enormous proportions. Taper later the crisis will be larger. Do not taper and the future crisis will wipe everything out guaranteed. Pass the buck onto future generations, the Progressive way. 

Wed, 10/30/2013 - 14:51 | Link to Comment poor fella
poor fella's picture

In summary: The system feces a crisis of enormous proportions.

Wed, 10/30/2013 - 15:44 | Link to Comment Oracle 911
Oracle 911's picture

In summary of summary: We are fucked either way.

Wed, 10/30/2013 - 13:22 | Link to Comment max2205
max2205's picture

Love all these dont taper me bro stories from the financial sector ....the bs is so obvious

 

OT....Twitter gets sued for Securities fraud. ..good job Icann Gross and the rest of you whores/ thieves

Wed, 10/30/2013 - 13:57 | Link to Comment endfedup
endfedup's picture

Does a Polar Bear shit in the woods.

Wed, 10/30/2013 - 13:08 | Link to Comment zaphod
zaphod's picture

The simple fact that we are only talking about the possibility of tapering/tightening, shows that all sanity has been lost.

This is simply a discussion on how much money to keep printing, the discussion for now on will never be about whether or not to print at all.

History will judge this time period harshly.

Wed, 10/30/2013 - 13:27 | Link to Comment slaughterer
slaughterer's picture

You guys are in for a big surprise today.  Liesman just called us and Cohen.  The Fed is making a tapering announcement today.  

Wed, 10/30/2013 - 13:30 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Yes, they will make an "announcement" (while increasing the morphine drip to 180 billion per month).

Wed, 10/30/2013 - 14:16 | Link to Comment Silver Bully
Silver Bully's picture

'Will the Fed ever taper?'

AH-HAHAHAHAHAHAHA [breathes] HAHAHAHAHAHAHAHAHAHA [breathes] HAHAHAHAHAHAHAHAHAHA. . .

 

Wed, 10/30/2013 - 13:04 | Link to Comment RSloane
RSloane's picture

No the Fed will never taper. What did I win?

Wed, 10/30/2013 - 13:07 | Link to Comment skm
skm's picture

me yellin 4 170billn bennybucks/month

Wed, 10/30/2013 - 13:35 | Link to Comment Winston Churchill
Winston Churchill's picture

Paper bankruptcy.

Wed, 10/30/2013 - 15:19 | Link to Comment KnightTakesKing
KnightTakesKing's picture

You won a date with Janet Yellen. Can't wait to see your date pics.

Wed, 10/30/2013 - 13:05 | Link to Comment hugovanderbubble
hugovanderbubble's picture

CDS counterparty and legal risks on tic tac...

 

Wed, 10/30/2013 - 13:20 | Link to Comment NotApplicable
NotApplicable's picture

CDS counterparty???? Good one!

Wed, 10/30/2013 - 13:08 | Link to Comment wisehiney
wisehiney's picture

dup

Wed, 10/30/2013 - 13:10 | Link to Comment ChaosEquilibrium
ChaosEquilibrium's picture

I believe JPM's PERMABULL Lee said this yesterday....." equities ready to explode to the upside"!!

 

Lee is a fucking TOOL of the highest order and paid to talk JPM book....So Fuck Him!

Wed, 10/30/2013 - 13:07 | Link to Comment buzzsaw99
buzzsaw99's picture

...a weak US economy that can’t withstand the rise in interest rates we have already seen”.

 

^^^THIS^^^ in a nutshell

Wed, 10/30/2013 - 13:28 | Link to Comment RSloane
RSloane's picture

++++ 1. That's all she wrote.

Wed, 10/30/2013 - 13:07 | Link to Comment ebworthen
ebworthen's picture

The FED will quit blowing taxpayer money on banks and the equity casino when NASA proves the moon is made of cheese.

Wed, 10/30/2013 - 14:17 | Link to Comment banzai401
banzai401's picture

That's the beauty of this Ponzi that Madoff eloquently spoke of, there is no tax payer, there is no last man standing with a job to tax.

 

The FED pulls FIAT out of its ARSE, and buys US DEBT and the US government creates money from the bond's sold, but this is a new world order.

A perpetual motion machine of free 'money'.

 

Fuck Trillions, soon it will be Quadrillions, ...who gives a fuck, everybody will be a billionaire just like Zambabwe.

 

Wed, 10/30/2013 - 13:07 | Link to Comment Iriestx
Iriestx's picture

Taper?  Are you mad?  They're going to have to start doubling down every 10-12 months now.  $85b/mo...  $170b/mo... $340b/mo.... it's coming, folks.

Wed, 10/30/2013 - 13:19 | Link to Comment RaceToTheBottom
RaceToTheBottom's picture

Doubling down.  It has the sort of logical symmetry that appeals to a central bankster....

Plus with one decision, you can make years worth of decisions....  Just keep doubling down....

It is their plan.

Wed, 10/30/2013 - 14:20 | Link to Comment Silver Bully
Silver Bully's picture

'doubling down?'

Heck no, it won't be no doubling down. It will be freaking exponential if they want to keep having an actual economic affect in the markets. The BoJ already tried 'doubling down', and everyone saw how well that worked (i.e - it didn't). Double the stimulus and the time it lasts gets cut in half with each round of stimulus. Fukushima taught the BoJ well. The Fed is sure to have picked up some tricks or two from them.

Wed, 10/30/2013 - 13:14 | Link to Comment banzai401
banzai401's picture

There is no other buyer of DEBT.

Thus the FED is now the US Taxpayer.

 

The FED is now the BOSS in the MAFIA sense of the USA.

 

'Taper' was orginally meant to wean a meth whore off meth, but now that the whore is the queen mother of the USA, and her life support is essential 60% of the USA public, there is no way in hell, ... the Whore will not get less, she will get more, she will get all she wants, for the METH WHORE is america herself. Given not a single fucker on the planet is willing to provide meth to the whore other than the FED, and given the fact that the majority of the USA public are on the dole and suck tit on the meth whore, its in nobody's interest to rock the boat.

 

 

Unless the USA of course can engineer a 1979 purchase of US debt by offering 20% rates to the world, but its understood now the debt is too BIG,

 

Some kind of 'reset' ( aka debt Jubilee ) , and then we can talk about ending the 'FIX' to the whore,

Wed, 10/30/2013 - 13:10 | Link to Comment kralizec
kralizec's picture

Will pigs ever sprout wings and fly?

Wed, 10/30/2013 - 13:29 | Link to Comment flyingpigg
flyingpigg's picture

Yes Kralizec, pigs can fly. I jumped of the empire state building and have been flying for several seconds now. :)

I just need to learn how to change my course because so far only flying in one direction....

 

Wed, 10/30/2013 - 13:37 | Link to Comment Winston Churchill
Winston Churchill's picture

Called dreamliners.

Wed, 10/30/2013 - 13:12 | Link to Comment OldE_Ant
OldE_Ant's picture

lol.  Your joking right?

Ben talks taper (doesn't do it) rates in US jump over 100basis points in 6 weeks.

Here is one for you.  What if the FED talks easing, but then actually tapers?

Who would know the fucking difference?

Wed, 10/30/2013 - 13:12 | Link to Comment RaceToTheBottom
RaceToTheBottom's picture

I vote for the negative taper:

170T$/month should do for the next year or so.

When in doubt, double down!!!!

Wed, 10/30/2013 - 13:14 | Link to Comment ciscokid
ciscokid's picture

Wait for a surprise today.

Wed, 10/30/2013 - 13:15 | Link to Comment RaceToTheBottom
RaceToTheBottom's picture

The thought that somehow the US consumer is going to come to the rescue does not make any sense.

The US consumer, with the exception of a few 1%'ers, has now recognized his role in the world and is kinda pissed about it.  After years of being WS's Muppet, it now sees the Muppet when looking in the mirror.

WS, you just killed the golden goose

Wed, 10/30/2013 - 13:19 | Link to Comment dcau1
dcau1's picture

Did Madoff ever taper?

Wed, 10/30/2013 - 13:22 | Link to Comment thetruthseeker
thetruthseeker's picture

What a freaking joke?  Are these analysts really that stupid or are that corrupt?  I think we know the answer.  The Fed will never taper or tighten.  It is QE-to-the-collapse, plain and simple.  Fuck Bernanke.  Fuck Yellen.  Fuck all the banksters and their cohorts. 

Wed, 10/30/2013 - 14:41 | Link to Comment SkottFree
SkottFree's picture

When you get all your funds from the government to justify your existence you must say what they tell you to say!

Why do you think there are only "scare the crap out of the stupid people about second hand smoke ads on TV all the time" because all the researchers are funded by the government! So to avoid being unfunded and out of a job parrot whatever they tell you to parrot! Even if it is a big lie! That way you get your funding and get a paycheck!

Isn't that easy!

Wed, 10/30/2013 - 13:37 | Link to Comment Element
Element's picture

They're going to have to induce volatility so people still think the markets may actually be a risky place.

Wed, 10/30/2013 - 13:39 | Link to Comment depression
depression's picture

QE has become as much of an entitlement as Social Security and Medicare.

Wed, 10/30/2013 - 14:02 | Link to Comment Seeking Aphids
Seeking Aphids's picture

The whole taper balloon is floated in a feeble attempt to drive down the markets.....meanwhile (almost) everyone knows that there will be no taper and that the direction of QE is up....$130B a month, maybe? Starting with Yellen? Every time I hear taper talk it makes me laugh.....or think how much is that guy getting paid to spout this stuff? And how do they keep a straight face while doing it? Employment numbers (massaged as they are) are terrible......no recovery in sight.....just more tunnel and a very bright light at the end of it..........and these rails below are vibrating, wonder what that means?

Wed, 10/30/2013 - 14:15 | Link to Comment annabelleballow
annabelleballow's picture

“Nothing is so permanent as a temporary government program.” Milton Friedman

Wed, 10/30/2013 - 14:23 | Link to Comment banzai401
banzai401's picture

Taper Talk is just Potty Talk, fuck that shit... The US debt is terminal, and not worth fixing, right now uncle sam has a credit-card with no-max, so he'll continue to see how high he can go before the IMF call's him.

 

There will be a RESET, but before that there needs to be a war.

A reset is a failure to re-pay debt, a jubilee, the christians will eat that shit up,... sort of like a 'bank holiday'.

The war of course will most likely be a civil war native to the USA,...

The civil war will cause all external powers to dump their dollars, ... that will make the 'reset' easy.

Then its all over and a new day for new debt.

 

Wed, 10/30/2013 - 15:05 | Link to Comment Seal
Seal's picture
If you kill off the prairie dogs there will be no one to cry for rain.

- Navajo warning

Read more: http://www.sulisminerva.org/2009/04/prairie-dogs-cry-for-rain.html#ixzz2jEXz9EPs 
Under Creative Commons License: Attribution

Wed, 10/30/2013 - 15:18 | Link to Comment lasvegaspersona
lasvegaspersona's picture

It is kind of odd. Instead of "Oh my god are they going to keep throwing 85 billion month after month into the machinery" they have convinced us to passively ask 'Hmm I wonder if they will 'taper'?"

The unthinkable has become the norm.

Wed, 10/30/2013 - 15:27 | Link to Comment Skid
Skid's picture

No, they won't. They checked in the roach motel of monetary policy.

Wed, 10/30/2013 - 15:57 | Link to Comment Isherwood
Isherwood's picture

Apparently the non taper was priced in

Wed, 10/30/2013 - 17:05 | Link to Comment cooperbry
cooperbry's picture

Haven't all questions about this been put to rest from the last two meetings ?

Wed, 10/30/2013 - 20:55 | Link to Comment StychoKiller
StychoKiller's picture

After intermission, the Kabuki show contines...

Wed, 10/30/2013 - 22:12 | Link to Comment Nobody For President
Nobody For President's picture

Hey gang, ease up. Just because QE hasn't worked for the last 30 plus months does not mean it isn't going to work this month. A little faith out there.

(Do you suppose all those smart fuckers on the FED board ARE insane? Or are they just lying to us, and don't really give a shit about unemployment-it is all about propping up the market and further enriching the 1%?)

Nevah mind - rhetorical question.

Thu, 10/31/2013 - 01:31 | Link to Comment Notarocketscientist
Notarocketscientist's picture

There are many who believe there will be a tapering in 2014.

 

Such fools are losing their opportunity to buy gold in the meantime.

 

Hope is a dangerous thing

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