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FOMC Ignores EM Crisis, Tapers Another $10 Billion - December Statement Redline

Tyler Durden's picture


Consensus that the Fed would extend its $10bn taper from December with a further $10 bn taper today (reducing the monthly flow to a 'mere' $65 billion per month - $30bn MBS, $35bn TSY) was spot on. We suspect the view, despite the clear interconnectedness of markets (and flows), of the FOMC is that "it's not our problem, mate" when it comes to EM turmoil.


Of course, "communication" was heavy with forward guidance on lower for longer stressed. We'll see if the market buys the dichotomy of hawkish real tapering and dovish promises...remember "tapering is not tightening."

Pre-FOMC: S&P Futs 1775, Gold $1267, 10Y 2.71%, 2Y 35.5bps, USDJPY 102, EM FX 85.67, WTI $97.35, IG 72bps, HY $106.35


Perhaps this chart from Saxo Capital Markets ( @saxomarkets ) sums up the world best for now...


Full redline below...


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Wed, 01/29/2014 - 15:03 | 4380769 Xibalba
Xibalba's picture

"less than expected"

Wed, 01/29/2014 - 15:05 | 4380778 AllThatGlitters
AllThatGlitters's picture

LOL - Look at Gold and Silver whipsaw up and down.  

Live Gold Chart Reaction:

Live Silver Chart Reaction:

As if any of this Fed Babble means anything. They don't stick to whatever they tell us they are going to do anyway.



Wed, 01/29/2014 - 15:06 | 4380788 Panem et Circus
Panem et Circus's picture

We are still a long way from lift-off. But I admire your enthusiasm!

Wed, 01/29/2014 - 15:08 | 4380794 hedgeless_horseman
hedgeless_horseman's picture



God bless Kevin Henry and his keyboard.


Wed, 01/29/2014 - 15:09 | 4380811 Headbanger
Headbanger's picture

Now where are all the "Fed will never taper" douche bags who were here a month agao!!/


Wed, 01/29/2014 - 15:16 | 4380880 nope-1004
nope-1004's picture

If you believe the headline (and this gov't), do so at your own risk pal.


Wed, 01/29/2014 - 15:19 | 4380905 AllThatGlitters
AllThatGlitters's picture

That's right nope.  The Fed Statement is far from proof that Fed is tapering, LOL.  Talk about naive!

Wed, 01/29/2014 - 20:16 | 4382492 new game
new game's picture

it appears, haha appears that hey are acting prudent(yeh right), as a deversion from backstopping spending.

if we only knew. after 08 and the money laundered to buds around the globe and ge, i can asure you the 65 b is the tip of the iceberg.

until they are gone, it will be the shadow fed in my eyes...

but, i dare to say, they will be unseated when the dollar is no long king of the ponzi.

post syria crisses, we lost major credibilty worldwide. the world bank dude advising china and coming out, and the snow ball is rolling down the slope in wet world emerging fx turmoil. ok bricks have you had enuf? like our nsa spying?

fuking joke merica with the joker in charge. where is batman and boy wonder(snowden i supose).

i am preparing formy  dollar reserves to be cut in half if not vested. or spent on durable and hard assets.  trick is to pick the correct ones.


Wed, 01/29/2014 - 21:15 | 4382638 Jack Napier
Jack Napier's picture

The Fed may have tapered the rate of increase in QE as compared to last month but they are still increasing the amount of total QE every month. I'll consider it a taper when they decrase the money supply and start trying to unwind the black hole. That will never happen.

And the way markets are responding to a slight reduction in Fed heroine is evidence that the addict cannot survive without it. Don't get it twisted. QE isn't going anywhere. They are simply gauging the patient's level of addiction to determine future dosings.

Wed, 01/29/2014 - 15:18 | 4380891 NotApplicable
NotApplicable's picture

Until the Treasury market has to rely upon voluntary market support (aka real consumer demand), any "tapers" are merely fictional facades.

So, while the Fed pretends to taper, they merely make cash flow in a different direction.

And people like you apparently fall for it.

Here's the deal...

money is fungible

Wed, 01/29/2014 - 15:19 | 4380910 atomp
atomp's picture

IIRC, the meme from a couple months ago was: taper-crash-untaper, but yes, the never taper guys seem to be absent.

Wed, 01/29/2014 - 15:27 | 4380963 Herd Redirectio...
Herd Redirection Committee's picture

And we have seen the S&P down 3.5%+.  And EM turmoil.  The loonie lost 10% in the last month. I'm more in the "they'll never raise rates (significantly)" camp.

Wed, 01/29/2014 - 15:21 | 4380923 Cursive
Cursive's picture


I've always thought they'd taper (they eventually have to), but not convinced of anything that they SAY.  I want to see what they DO.

Wed, 01/29/2014 - 15:35 | 4381000 Frozen IcQb
Frozen IcQb's picture


That would be me...I accept full responsibility and spare my fellow ZH'ers.


Wed, 01/29/2014 - 15:37 | 4381020 Uber Vandal
Uber Vandal's picture

Uber Vandal reporting for whipping boy duty, sir!

Wed, 01/29/2014 - 15:40 | 4381049 arkel
arkel's picture

I thought they would never taper, so I'm wrong.

Plus, surprised that gold/silver aren't sliding. Also surprised that bond yields aren't moving higher. 

Wed, 01/29/2014 - 20:22 | 4382508 new game
new game's picture

fear trade, plus they have 19 dealers given marching orders(the club) and have their backs covered.

taking the 2.5 handle way sooner than previously thought. 16 basis pts from...

Wed, 01/29/2014 - 15:48 | 4381097 ejmoosa
ejmoosa's picture

So, if we change it to a time perspective, then the Fed is just two weeks behind on it's normal volume of actiities....And for the last 12 months, we are at Taper= (85*12)-30. 

97% of the previous rate of QE, or 100%.

Petty much the same in my eyes.

Wed, 01/29/2014 - 16:18 | 4381227 SDShack
SDShack's picture

Just wait until the end of February, when the Repukes cave on the debt ceiling, and the budget deficit starts rising again due to expiration of the sequester. QE was just a way to monetize the debt. The deficit fell because of the debt ceiling and sequester. That is coming to an end, and the deficit will rise as congress goes on another spending spree. Hell, you just saw it with the Farm Bill that just passed. Every bill going forward is going to be larded with pork. Under Bush, $400B deficits were the end of the world, but $700B deficits now are trumpeted by 0zer0 in his SOTU speech. Meanwhile housing is slowing, jobs are non-existent, benefits continue and are trying to be expanded, add amnesty and 0zer0care = deficit rises and debt ceiling is broken, so the Treasury has to find more treasury buyers, and the Fed is buyer of last resort. This taper is only temporary at best. By the end of 2014, it will be apparent the recovery that never was will give way to the never ending great recession. Enter the Fed once again. Rinse and repeat.

Wed, 01/29/2014 - 15:09 | 4380817 Hedgetard55
Hedgetard55's picture

Questiion: how does ZH get this info and it's analysis out so quickly, time stamp 14:01, 1 minute from release? At least with Hilsenwrath I know he gets it 30 minutes early, but Tyler? What up wid dat?

Wed, 01/29/2014 - 15:18 | 4380892 RebelDevil
RebelDevil's picture

Keep in mind that the "Tylers" are more likely a team of 40 (or more) than 4. See Wikipedia and past bios on the Tylers.

They're dedicated to be the best in financial and economic journalism, and I like that. :)

Wed, 01/29/2014 - 15:22 | 4380925 Hedgetard55
Hedgetard55's picture

Yea, a C-note to Jon and the minutes find their way over to Tyler also. Guess that's cool, bringing a gun to a gunfight, so to speak.

Wed, 01/29/2014 - 16:37 | 4381409 silvermail
silvermail's picture

"how does ZH get this info and it's analysis out so quickly, time stamp 14:01, 1 minute from release?"

They are advance prepared text of this last of Bernanke's speech.

Wed, 01/29/2014 - 15:08 | 4380796 A L I E N
A L I E N's picture

Taper is tightening in this Keynsian wonderland

Wed, 01/29/2014 - 15:10 | 4380819 StacksOnStacks
StacksOnStacks's picture

Hey guys!  Instead of smoking 10 packs a day I'm going to smoke 9.5.  It'll be like I'm not smoking at all! Everything is well.

Wed, 01/29/2014 - 15:05 | 4380770 AllThatGlitters
AllThatGlitters's picture

Isn't this what everybody said it would be?


Wed, 01/29/2014 - 15:03 | 4380773 sixsigma cygnus...
sixsigma cygnusatratus's picture

Cue Cramer melt down...

Wed, 01/29/2014 - 15:09 | 4380805 ebworthen
ebworthen's picture

He's saving the full-bore histrionics for the next big crash so his acolytes can see him get angry.

"What does it matter!?!?  Four years of gains are dead!!!"

Wed, 01/29/2014 - 15:12 | 4380836 Levadiakos
Levadiakos's picture

Hold on! I need to know what he's buying.

Wed, 01/29/2014 - 15:14 | 4380850 dcj98gst
dcj98gst's picture


Wed, 01/29/2014 - 15:05 | 4380775 ebworthen
ebworthen's picture

Set the prime rate at 5%!

Zero QE!

C'mon you CHICKENS!


Wed, 01/29/2014 - 15:04 | 4380777 maskone909
maskone909's picture

bond buying? i thought it was only MBS

Wed, 01/29/2014 - 15:13 | 4380856 CH1
CH1's picture

It was 40/45.

Not sure what it is now.

Wed, 01/29/2014 - 17:24 | 4381661 peter123007
peter123007's picture


Wed, 01/29/2014 - 15:04 | 4380780 Tsunami Wave
Tsunami Wave's picture

I didn't expect another taper so soon.  But then again, it's maybe good cop FED time before bad one comes in soon.

Wed, 01/29/2014 - 20:30 | 4382529 buyingsterling
buyingsterling's picture

They need a big taper before the big correction, or they won't be able to justify the untaper.

Wed, 01/29/2014 - 15:06 | 4380781 SDRII
SDRII's picture

yen sub 102

Wed, 01/29/2014 - 15:09 | 4380785 Dr. Engali
Dr. Engali's picture

Don't worry we can make up for it in our MyRas.


Way to go Ben you throw 23 trillion at the problem just to fuck it up on your way out. You're an even bigger buffoon than I thought.

Wed, 01/29/2014 - 15:07 | 4380790 Kaiser Sousa
Kaiser Sousa's picture

they aint tapering a mother fucking cent...

the counterfeiting will continue along with the free confetti being spoon Fed to their banker brethren...



Wed, 01/29/2014 - 15:11 | 4380816 oddjob
oddjob's picture

Selling the same bonds twice had a rather destructive conclusion last time.

Wed, 01/29/2014 - 15:14 | 4380849 Levadiakos
Levadiakos's picture

You had to throw your hat into the ring

Wed, 01/29/2014 - 15:21 | 4380918 Levadiakos
Levadiakos's picture

Go ahead. Average down.

Wed, 01/29/2014 - 15:15 | 4380872 Winston Churchill
Winston Churchill's picture

42 times actually , by the unlamented Bear Stearns decd.,

Wed, 01/29/2014 - 15:15 | 4380869 DadzMad
DadzMad's picture

Right.  Saying they're going to taper and actually tapering are two different things.

On another note.  I check CNBShit occasionally to catch up on commodities (corn and beans).  I love how they openly hate the metals.  The headline reads "Gold inches higher" when it's up fifteen bucks, but the next time state "Gold gets slammed!" when it drops 4.50.

Wed, 01/29/2014 - 15:15 | 4380873 wiseindian
wiseindian's picture

And speaking of stacking, what is the ZHers consensus on approximate oz of stacks that we should own and subequently foolishly to lose in boating accidents? Looking for rule of thumb to see where I stand in the army of stackers.

Wed, 01/29/2014 - 15:32 | 4380994 Kaiser Sousa
Kaiser Sousa's picture

take note of the global debt based currency paradigm unraveling on a daily basis before your very eyes...

then open up your safe and stare at your real money...

if you can close it with the belief that you have enough to get you and yours thru the great reset  - then you have enough...

if you cant - you dont.....

Wed, 01/29/2014 - 18:04 | 4381860 AngelEyes00
AngelEyes00's picture

"if you can close it with the belief that you have enough to get you and yours thru the great reset"

You haven't been listening to Lindsey Williams have you?  Currency exchanges operate to adjust currency valuation.  Currency resets are not needed.


Wed, 01/29/2014 - 22:18 | 4381302 Frozen IcQb
Frozen IcQb's picture

5% in palpable physical and another 25% in pm shares as a percent of investable assets.

Wed, 01/29/2014 - 15:07 | 4380798 J Pancreas
J Pancreas's picture

ZH/Schiff/several peers on here said this was the plan all along. The untaper will happen. 50 million Americans on food stamps. Ignore the noise, walk out of the door, and look at the 'space available' signs around you.

Wed, 01/29/2014 - 15:10 | 4380820 Levadiakos
Levadiakos's picture

As long as Jamie's bonus is safe it's all good.

Wed, 01/29/2014 - 15:14 | 4380863 CH1
CH1's picture

walk out of the door, and look at the 'space available' signs around you.

Yup, lots and lots of those... but Barry told me to keep believing!

Wed, 01/29/2014 - 15:20 | 4380916 RebelDevil
RebelDevil's picture

It is obvious now that the "untaper" will happen when the equity market cries for dear life after being nearly stabbed to death.

Wed, 01/29/2014 - 15:08 | 4380800 I Am Not a Copp...
I Am Not a Copper Top's picture

3:30 Ramp will save us

Wed, 01/29/2014 - 15:52 | 4381102 HardlyZero
HardlyZero's picture

How does stock Sisypus ramp a fiat dried prune Yellin' ??  

 (WB7 ?)

Wed, 01/29/2014 - 15:09 | 4380802 youngman
youngman's picture

Here comes the PM Hammer....


Wed, 01/29/2014 - 15:07 | 4380803 Levadiakos
Levadiakos's picture

Why would the FRB care about muslim curriencies?

Wed, 01/29/2014 - 15:08 | 4380804 starman
starman's picture

"unemployement declined but stayed elevated" 


Wed, 01/29/2014 - 15:08 | 4380806 r101958
r101958's picture

Somebody already got the word regarding the additional 'taper' about a week ago. The Dow is down 680 pts over that time.

Wed, 01/29/2014 - 15:16 | 4380865 Cursive
Cursive's picture



Wed, 01/29/2014 - 15:17 | 4380887 CH1
CH1's picture

Somebody already got the word regarding the additional 'taper' about a week ago.

LOL... Gee, maybe it was... the same guys who made the decision? !!!

Wed, 01/29/2014 - 15:09 | 4380807 Ban KKiller
Ban KKiller's picture

As always this is doubleplus good. Sell toilet paper. 

Wed, 01/29/2014 - 15:08 | 4380809 NOTW777
NOTW777's picture

LOL they are still talking about the "improving economy" and no inflation - things sound wonderful

Wed, 01/29/2014 - 15:13 | 4380846 fuu
fuu's picture

Yet Treasury is selling floating rate notes to protect against inflation. Hmmm.

Wed, 01/29/2014 - 16:12 | 4381249 SDShack
SDShack's picture

Recovery Summer 6.0

Wed, 01/29/2014 - 16:25 | 4381332 ejmoosa
ejmoosa's picture

More like Recovery Summer 1.5

Wed, 01/29/2014 - 15:09 | 4380812 fonzannoon
fonzannoon's picture

Sayonarra....will the fed trade a 5% drop in SPY for every 10 bil in taper?

Wed, 01/29/2014 - 15:16 | 4380879 Cursive
Cursive's picture


You know, EKM was only off by about 5 months...hope he is well.

Wed, 01/29/2014 - 15:24 | 4380958 fonzannoon
fonzannoon's picture

I hope he is well too. he was a good guy. I don't know though man...this is a fed induced guess is they will reverse it when they are ready. look at yields...when they are spiking and not dropping u will know it's real

Wed, 01/29/2014 - 15:11 | 4380813 gatorengineer
gatorengineer's picture

This should twist Comex's balls off... paper gold gotta go down phys gotta go up.... Nuts meet vice.  Lets break it already

Wed, 01/29/2014 - 15:09 | 4380814 Bearwagon
Bearwagon's picture

Roll over, lay down and just be gone! We gotz to getz us better personell. Like B. S. Johnson or likewise ..

Wed, 01/29/2014 - 15:09 | 4380815 Charles Nelson ...
Charles Nelson Reilly's picture

Hilsenrath's piece up yet?

Wed, 01/29/2014 - 15:14 | 4380843 J Pancreas
J Pancreas's picture

May you never mention that slug's name on here again!

Wed, 01/29/2014 - 15:17 | 4380824 TomGa
TomGa's picture

Straddling the fence.  Fed wants to demonstrate some modicum of confidence in the "economy" for the benefit of the sheep,  but they know it's still a disaster. So they do a $10 billion taper of no real importance just to not admit that they're stuck in an increaslngly desperate situation. Whoop-dee-doo...  Five continuous years of no growth??  Sheesh....

Wed, 01/29/2014 - 15:35 | 4381015 viahj
viahj's picture

industry MBS monthly production ~29-32b, fed's appetite now reduced to what a taper!  there has been political room for the last two tapers due to lack of new creation.  sure, some of the old stuff (if any left) can't be as aggresively bid but....

Wed, 01/29/2014 - 16:27 | 4381355 ejmoosa
ejmoosa's picture

June 2014: "Hey when I left we were increasing the Taper.  I don't know what the hell happened."  Former Fed Chair Ben Bernake on the increase in QE to 115 billion per month.

Wed, 01/29/2014 - 15:11 | 4380828 papaswamp
papaswamp's picture

Real interesting reaction so actually rising a bit. 10yr UST yield popped a bit only to stay down. Equities acted like taper on all day so not much change. The gold reaction is very interesting. It suggests, along with DXY non movement, ( at the moment) that there are some other serious problems lurking.

Wed, 01/29/2014 - 15:18 | 4380890 gatorengineer
gatorengineer's picture

most interesting is the flat Euro USD reaction......  Could this have been priced in at 1.37?

Wed, 01/29/2014 - 15:23 | 4380933 papaswamp
papaswamp's picture

It does look like most moves were already made well in advance. Basically a non event.

Wed, 01/29/2014 - 15:20 | 4380915 Winston Churchill
Winston Churchill's picture

Just look at whats happening with reverse repos, and the GOFO rates.

The shadow banking system is getting very particular about what is

acceptable colateral.

Wed, 01/29/2014 - 15:12 | 4380829 cjt
cjt's picture

Oh my GOD, CNBC panel just said (at 2:10pm EST) that the reason why unemployment is not going down any more is since the stock market has doubled since 2009 people have so much money everyone is retiring!  I'm not shitting you... the entire panel just agreed.  That is why people are "dropping out" of employment.  WHAT TOTAL SHIT.

Wed, 01/29/2014 - 15:23 | 4380939 NoWayJose
NoWayJose's picture

A number of CNBC employees have been 'retired' but mostly due to their plunge in ratings.

Wed, 01/29/2014 - 15:24 | 4380961 RebelDevil
RebelDevil's picture

The only reason why I watch/read financial MSM  on occasion is that playing "Devil's Advocate" can be a great teacher.

(Why miss time your shorts when you could go long for the month?)

Wed, 01/29/2014 - 15:35 | 4381006 maskone909
maskone909's picture

cnbc/comedy channel cant seem to figure out which is more amusing

Wed, 01/29/2014 - 15:11 | 4380831 buzzsaw99
buzzsaw99's picture

the bernank made the market go down when he started so yellen will do the same for the first few months. it's all a god damned screw job rigged fucking market.

Wed, 01/29/2014 - 15:11 | 4380833 PontifexMaximus
PontifexMaximus's picture

Fairy tales. Look what they do not what say.

Wed, 01/29/2014 - 15:12 | 4380834 Seasmoke
Seasmoke's picture

MY MY MY .......... RA RA RA 

Wed, 01/29/2014 - 15:14 | 4380841 q99x2
q99x2's picture

At first it was reported as a UFO but on radar it was shown to be a Bernanke in a golden parchute set to touch down on Jamie Dimon's island.

Farewell to the beard. May the ChairSatan slither his way back to Hell.

Wed, 01/29/2014 - 15:13 | 4380842 madbraz
madbraz's picture

NY FED reverse repo limit per participant increased to $5 billion from $1 billion in 2 months.   We now have $90 billion in daily volume by the FED.  




Wed, 01/29/2014 - 18:29 | 4381967 Crusader Rabbit
Crusader Rabbit's picture

madbraz - You seem to be on top of this reverse repo roll out.

They have ramped up the amount from 1 billion to 3 billion and now 5 billion as QE is wound down. How does the ramp up supplant the ramp down? 

I undertand the reverse repo is for primary delaers (21?) and money market funds, how many participants are there?

How many times can the $5 Billion be re-hypotheicated? What is the potential amount per day?


Wed, 01/29/2014 - 15:27 | 4380851 ebworthen
ebworthen's picture

Santelli pointing out that the FED says ZIRP until 6.5% unemployment early in the report, but in the end of the report saying they could continue ZIRP indefinitely.

"Baffle 'em with Bullshit" in full force!

Wed, 01/29/2014 - 15:14 | 4380862 Hedgetard55
Hedgetard55's picture

Maybe Ben/Felon got Santelli's message. "What are you afraid of, Ben?"

Felon, chomping on her cigar: "We ain't afraid of nuttin, you guinea fuck".



Wed, 01/29/2014 - 15:17 | 4380877 Iam Yue2
Iam Yue2's picture

Malaysian ringgit getting sold off.

Wed, 01/29/2014 - 15:18 | 4380904 Spungo
Spungo's picture

Not much happening on the VIX. What is this nonsense? I demand it crash faster.

Wed, 01/29/2014 - 15:21 | 4380924 NoWayJose
NoWayJose's picture

Seen on Janet Yellen's desk --

Memo to self
Subject - Melting

Avoid girls from Kansas carrying buckets of water... We are not in Oz anymore.

Wed, 01/29/2014 - 15:23 | 4380943 Bastiat
Bastiat's picture

Mr Yellen:  Ben, please, you're frightening the children!

Wed, 01/29/2014 - 15:26 | 4380966 The_Ungrateful_Yid
The_Ungrateful_Yid's picture

Know what I say? Fuck the children

-George Carlin

Wed, 01/29/2014 - 15:36 | 4381023 Peter Pan
Peter Pan's picture

Could it be that tapering in the short term might work because there is so much shit going on in the world right now that the fools might decide it's better to buy US treasuries and bonds?


Wed, 01/29/2014 - 15:43 | 4381063 Rising Sun
Rising Sun's picture

love the fucking bullshit about job numbers - as more leave the work force and give up searching for work - this helps unemployment numbers and Fed sees this as a good thing


riots in the streets are coming soon.

Wed, 01/29/2014 - 16:04 | 4381203 Spungo
Spungo's picture

Guys like Peter Schiff should keep saying they will never fully end QE. Yellen will be like "oh yeah? I'll crash this fucking country just to prove him wrong!"

Wed, 01/29/2014 - 16:37 | 4381282 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

No they didn't they know exactly what they are doing here. Let me explain in terms of climate science because there is key point that needs to be highlighted to explain what we are seeing.

A paper published January 21st in Quaternary Science Reviews reconstructs storm activity in Iceland over the past 1,200 years and finds storminess and extreme weather variability was far more common during the Little Ice Age in comparison to the Medieval Warm Period and the 20th century. The paper adds to many other peer-reviewed publications finding global warming decreases storm activity, the opposite of claims by climate alarmists.


Well no shit sherlock they teach this in grade school science or they used to anyways it is called temperature differentials. The larger the differential the more volatile the interaction is as they move into the same space as the energy transfers from one to the other until equilibrium is achieved. the volality is also effect by the size of the space when the temperature differentials interact.

So climate scientists conveniently ignore duh no shit stuff they teach in grade school to make claims for global warming when the opposite is true global cooling causes volatile extreme weather because of the increased temperature differential between the poles and equater. The opposite relation is true during global warming.

ZH readers can convince themselves of this. It is called your fucking fireplace and how the chimney works to vent smoke up and out of the fireplace by draft which is driven by this process.

Systems ultimately want to revert to an equilibrium state so with that in mind there is 2 ways to do it.

1. Provide no outside energy and let differentials interact causing volatile reactions until equilibrium is achieved where both differentials mix into the same temperature which is neither each but somewhere between.

2. Provide outside energy and the internal differentials slowly normalize without volatility until the differential between internal differentials equalize with each other then also equalize with the outside energy source temperature.

QE is number 2 but it didn't work for 2 reasons.

1. The outside energy source the USD being the reserve currency is really not an outside energy source.

To illustrate in simpliest turns

C = { (A/B) } where C = the reserve currency and {} is the global economy

To keep things stable with little to no volatility  you need to find a value for C where A = B at the same time.

The reality is this

C = { (A/B) + (A/C) + (B/C) }

To keep things stable with little to no volatility  you need to find a value for C where A = B and A = C and B = C. It can't happen the equation is invalid.

So as you pump into C the other Central Banks did the following they all followed suite and pumped into A and B so the differentials between the A and B, B and C, A and C didn't change.

You pull away QE aka C what happens next those differentials now normalize internally on their own causing extreme volatilty in the process unfortunately as C equalizes with A and B the whole interaction is going to be volatile either until it normalizes or it destroys itself.

That type of relationship with all the variables is too complex for the FED or any Central Bank by itself playing the role of reserve currency to control all the variables.

The other important lesson here is reserve currencies will always ultimately fail and money printing will using a reserve currencies will never stabilize a system because in order for it to work it has to be a currency not owned by any country and not be used whatso ever anywhere within the global economy in order for it to be counterbalance that can turned on or off to force the internal differentials to equalize in a manner in which you reach the state of C = { (A/B) } where A = B and A/B = C.

QE providing energy from the outside only can work for the short term because of this basic concept. The only true outside reserve currency which all the paper can balance against that is not money for it to work is that barbaric shiny relic they insist is not money aka gold. This is also why a gold standard will not work with it being a currency also and the reason you need to use silver as a currency and gold as a reserve.

The emerging markets are the hot temperatures equalizing with the developed markets aka cold temperatures through this natural temperature differential process now that QE is now longer trying to provide outside energy in a flawed implementation to mitigate volatility.

Wed, 01/29/2014 - 19:36 | 4381874 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

To take it a step further to illustrate why QE doesn't work to minimize differentials. Assume in the real world D is the true reserve currency aka gold which is not used as money and C being the paper reserve currency aka the USD.

D/C = { (A/B) + (A/C) + (B/C) }

If we had a gold standard pre 71 still then C/D = { (A/B) + (A/C) + (B/C) }

If A and B are fixed when QE C the differential between A/B never changes in an ideal situation the reality is A and B print to keep their relative differentials to C fixed so A/B still doesn't change take for example A = 5, B = 2, C = 21, A/B = 5/2. aka the USD triples the money supply and Central Banks for A and B print to keep that relative exchange rate the same now A = (5*3) and B = (2*3) so now A/B = 15/6. Nothing changed relatively but QE increased the diferential from 3 to 11. A/C went from 5/7, 2 to 15/21, 6 and B/C went from 2/7, 5 to 6/21, 15. Take QE out and what happens the relative differentials still stay the same but the differences decrease aka volatility which is exactly what you see in the emerging markets and the weaker ones are more volatile as QE is tapered back in according to how far the absolute difference changed in ordered for least to most volatile (A/C) -4, A/B -8 and B/C -10 once they normalize to pre QE levels. If you never used QE then either you increase A by 3 or decrease B by 3 which is the least volatile correction of them all.

Or to put it in simplier terms for volatility

(A/B)*C which QE = C

If relative value ratio stays the same as C increases

A/B = (A*C)/(B*C)

A doesn't = A*C and B doesn't equal B*C


A < (A*C)

B < (B*C)

A-B < (A*C) - (B*C)

taper back C the volatility is in the differential between A - B and (A*C) - (B*C)

Volatility happens when differentials decrease.

It gets even more volatile if one doesn't stop printing which you then have

A - B < (A*C) - B

That is what happened with Turkey so what did they did to counteract that volatility aka differentials naturally wanting to normalize and the volatility that goes along with the process. QE ultimately creates volatility and worse volatility than if the natural corrective measures are allowed to take place without intervention in the first place.


QE just increases absolute differential of A - B < (A*C) - (B*C) and not allowing the natural mixing process to occur between A - B while C is in effect (illusion of no volatility) and as we see you can't print forever and therefore you can't cheat volatility which happens once you stop printing and the amount of volatility is greater than if you allowed the natural mixing process to happen without QE.

Wed, 01/29/2014 - 21:06 | 4382637 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

QE or no QE this illustrates the boom/bust cycle and why it is always volatile once the music stops playing and the contraction happens along with the greater the boom the greater the bust. Climate science temperature differentials explain it all, real hard science actually explains pseudo-science like economics because the systems are the same systems and therefore for the same rules. Who woulda thunk it?

Wed, 01/29/2014 - 16:22 | 4381314 Save_America1st
Save_America1st's picture

so what...they "tapered" back to 110 Billion/month?  They had already priced in tapering 8 months ago when they were averaging over 130 billion per month...just so they could give Ben some wiggle room to "taper".  If they really even "taper" for real and it's not just some fucking lie, then they're really still monetizing around 110 Billion per month going forward from here. 

Big fucking deal

Wed, 01/29/2014 - 16:44 | 4381446 pursueliberty
pursueliberty's picture

They've become really great at knocking the 10Y down.  Was a lot of talk weeks ago about 3.5% or more, yet it keeps going opposite direction.  I think they have a far greater grasp on things than given credit for, or it is an amazing run of luck.

Wed, 01/29/2014 - 18:20 | 4381933 Papasmurf
Papasmurf's picture

Time to crash this succa!  Sweep the chips off the table.

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