Submitted by Charles Hugh-Smith of OfTwoMinds blog,
The Fed is being forced to end its bond-buying, cutting off the "free money for financiers" that has sustained a frothy stock market.
While the Federal Reserve presents itself as free to do whatever it pleases whenever it pleases, the reality is the Fed's own policies are constraining its choices. Take the taper of U.S. Treasury bond purchases--the heart of quantitative easing (a.k.a. QE or more accurately free money for financiers).
Many seem to believe the Fed was forced into buying bonds because foreign owners have been dumping their Treasury bond holdings. But if we look at a chart of foreign-owned Treasuries, we see a modest dip in mid-2013 that reversed later that year. Foreign ownership has reached a new high of $6 trillion:
Much has been made of China selling some of its Treasury holdings, but if we look at this breakdown of foreign ownership, we see relatively modest fluctuations in the holdings of both China and Japan.
As I noted in Are Capital Inflows Propping Up U.S. Markets?, foreign central banks buy Treasuries not just for reserves but to lower the value of their currency vis-a-vis the U.S. dollar, the idea being to boost exports to the U.S. by weakening their currency.
If the market will continue rising without the Fed's injections of free money for financiers, then why is Wall Street so terrified of "hawkish" murmurings, never mind actually hawkish actions by the Fed?