Kiss Tapering Goodbye

Just out from Fed "hawk" Dick Fisher:

  • FISHER: FISCAL SHENANIGANS HAVE `SWAMPED' QE TAPER PROSPECTS
  • FISHER: HARD TO NOW ARGUE TO CHANGE COURSE OF MONETARY POLICY
  • FISHER HAS FAVORED TAPERING FED MONTHLY BOND PURCHASES
  • U.S. FED'S FISHER REPEATS BEST TO 'STAY THE COURSE' ON BOND BUYING AT OCTOBER FOMC MEETING

And therein lies the most circular argument of the New Normal.

On one hand "fiscal shenanigans" exist, as does unprecedented Congressional dysfunction, simply because the Fed's endless intervention in the bond market has now made Fiscal policy both meaningless and ultra permissive. After all, why not fund everything with debt if said debt will be promptly monetized by the Fed, in the process keeping bond yields so low that there is no opportunity cost to reckless spending and making a completey mockery of fiscal prudency. Of course, there will be a price to pay "at the end of the tunnel", but for now the music is playing and one must if not dance, then issue as much debt as Bernanke, and soon Yellen, will monetize.

On the other hand, it is the same Fed-enabled, broken Congress that now virtually assures a government shutdown every quarter, when the can is repeatedly kicked "3 months down the line", and which will mean the Fed will be 'confused' as there is no government data for weeks on end, making any Tapering discussion impossible. And to the Fed's benefit and great comfort, it can just blame the same Congress and its "fiscal shenanigans" for its inability to extricate itself from the centrally-planned mess it has made.

Finally, it was notable that Blackrock's Larry Fink yesterday said he now doesn't see a Taper until June. At the rate we are going, one can simply kiss the Taper goodbye, which however means that going forward instead of monetizing 0.2% of all 10Year equivalent duration, the Fed's weekly purchases will extract between 0.3% and 0.5% from the private sector until such time as bond market liquidity is non-existent.

Expect to hear much more on this topic in the next TBAC presentation due out in a few weeks.