Will the Fed Ever Taper?

By David Llewellyn-Smith, founding publisher and former editor-in-chief of The Diplomat magazine, now the Asia Pacific’s leading geo-politics website. Cross posted from MacroBusiness

Overnight market action shows that nobody really has a clue about the Fed taper any longer. Stocks fell, suggesting it’s on. The US dollar and gold both rose marginally suggesting it’s on and off. Treasuries were bid suggesting it’s off. One night’s action is not the be all and end all but it is indicative of where we are at.

The stimulus to these various moves came from three different Fed speeches, which were just as confusing. William Dudley, a voting member and noted dove, spoke and made his intentions very clear:

To begin to taper, I have two tests that must be passed: (1) evidence that the labor market has shown improvement, and (2) information about the economy’s forward momentum that makes me confident that labor market improvement will continue in the future. So far, I think we have made progress with respect to these metrics, but have not yet achieved success.

With respect to the first metric, we have seen labor market improvement since the program began last September. Over this time period, the unemployment rate has declined to 7.3 percent from 8.1 percent. However, at the same time, this decline in the unemployment rate overstates the degree of improvement. Other metrics of labor market conditions, such as the hiring, job-openings, job-finding rate, quits rate and the vacancy-to-unemployment ratio, collectively indicate a much more modest improvement in labor market conditions compared to that suggested by the decline in the unemployment rate. In particular, it is still hard for those who are unemployed to find jobs. Currently, there are three unemployed workers per job opening, as opposed to an average of two during the period from 2003 to 2007.

With respect to the second metric—confidence that the economic recovery is strong enough to generate sustained labor market improvement—I don’t think we have yet passed that test. The economy has not picked up forward momentum and a 2 percent growth rate—even if sustained—might not be sufficient to generate further improvement in labor market conditions. Moreover, fiscal uncertainties loom very large right now as Congress considers the issues of funding the government and raising the debt limit ceiling. Assuming no change in my assessment of the efficacy and costs associated with the purchase program, I’d like to see economic news that makes me more confident that we will see continued improvement in the labor market. Then I would feel comfortable that the time had come to cut the pace of asset purchases.

I’ve no doubt that Congress will gets its act together sooner or later so that’s only a delay. Any further fiscal tightening is likely to be manageable but prevent domestic economy acceleration. The improvement in employment is fundamentally questionable and if it is going to require a fair dinkum fall to lower levels for tapering to begin then it’s possible we’ll never see it. The current talk of such has already been enough to knock the stuffing out of the US housing recovery and I expect data on that front to continue to deteriorate. We are also likely near the peak in data surrounding the global rebound with China still not producing any self-sustaining growth dynamics and Europe’s recovery slowing in the second derivative. Whether a triumphant Merkel steers back towards austerity now is also a vital question. Another Fed president, Dennis Lockhart, added that he already saw signs of slowing in the US jobs market.

Meanwhile, non-voting hawk, Richard Fisher declared that the Fed’s credibility had been undermined by the failure to tighten, didn’t reflect the discussion at the policy table and added uncertainty to markets and the economy.

I’ve backflipped once already on the taper. Originally I saw it as unlikely owing to the blowout in bond yields and effects on the housing recovery. The red hot run in ISM data persuaded me otherwise. Also, it seemed to me, since markets had priced it already, the Fed had nothing to lose in pulling the trigger. Now, the data flow henceforth is increasingly unlikely to support tapering with bond yields very likely to suppress the US recovery and the global bounce approaching its peak as well. It seems likely that the Fed has missed its window.

Then there are others, like Martin Feldstein, arguing at the FT that QE is doing nothing now anyway:

Although the initial burst of bond-buying may have helped to stimulate demand in 2010 and 2011, the current strategy is now doing very little to stimulate economic growth and employment. At the same time, continuing to buy long-term bonds and promising to keep the real short-term rate below zero even after the economy has returned to full employment have serious costs. They distort the investment behaviour of individuals and institutions, driving them to reach for higher yields by taking inappropriate risks. They lead banks to make riskier loans in order to get higher returns. The longer this process of abnormally low rates continues, the more disruptive will be the return to normal conditions.

According to Bernanke some months ago, the taper was designed to prevented a build up of leverage in the cycle. That was code for putting a lid on asset markets. That has been achieved in financial markets and most likely housing as well over the next six months. However, Feldstein is wrong when he says this won’t slow growth and the jobs market, and so tapering is off.

In other words the confusion is systemic and is the new normal.

Print Friendly, PDF & Email


  1. Conscience of a Conservative

    Good post.
    I had thought the Fed might taper a little this last time, given the Fed’s statements, the nod Obama was givin toward a Summers nomination and the fact that Fed purchases of MBS were becoming quite large compared to originations raising liquidity issues in the market.
    Fed tapering seems to have been taking off the table. Not only has Summers withdrawn his name, but now Yellen is once again the favorite and unlike Summers likes Q.E. I think it could be interesting that the change in Fed position comes at the same time Yellen is once again leading contender for Fed chief.
    Unlike the First Q.E. which has the fewest critics and addressed liquidity issues, it is much harder to see the second QE etc is needed or being proved effective, but it does seem the Fed has painted itself into a corner and can’t taper let alone unwind its massive balance sheet.
    Q.E. just might be the new normal or should I say Q.E. infinity.

  2. middle seaman

    With the benefit of ignorance in finances, it seems that the real issue is the unacceptably high unemployment. Congress will do nothing as a result of GOP’s love of unemployment. Obama doesn’t really care. The Fed stands as the only hope for decreasing unemployment.

    1. s spade

      The Fed is using unemployment as an excuse to continue the zero interest environment, which enables continued looting even if it doesn’t accomplish anything else. The Taper will never happen in this decade, perhaps never in the lifetime of anyone living today. The talk about it is just public relations and all it does is frighten speculators for a day or too before it is back to business as usual.

    2. JGordon

      That’s very interesting that you say the Fed is our only hope. So on that subject, in the past 5 years that these policies have been in place, to which one do we owe more our thanks for the robust and thriving economy we have today: ZIRP or QEinfinity? Or perhaps you believe it’s the trillion dollar government deficits and low interest rates the Fed has enabled with its government debt monetization program?

    3. DolleyMadison

      2/3 of the “stimulous” never left the building! How is buying worthless MBS from the very criminals who crashed the economy decreasing unemployment, which, if calculated correctly and transparently, is at record-high levels? The banks are not even hiring or retaining their OWN employees. What a joke.

  3. from Mexico

    The Fed very much reminds me of Seymour, the hapless florist shop worker who raises a plant that feeds on human blood and flesh.

    The plant, Audrey II, is the rentier-oligarchs who have gained such inordinate influence over the Fed.

    Together, they create “The Little Shop of Horrors,” the title of the Broadway muscial in which they are protagonists.

    Audrey II does not thrive in its new environment, the shop where Seymour works, and appears to be dying. Seymour questions why it should be doing poorly, since he takes such good care of it. He accidentally pricks his finger on a rose thorn, which draws blood, and Audrey II’s pod opens thirstily. Seymour realizes that Audrey II requires blood to survive and allows the plant to suckle from his finger (“Grow For Me”). As Audrey II grows, it becomes an attraction and starts generating brisk business for Mushnik. As the caretaker of the plant, Seymour has suddenly gone from loser to hero (“Ya Never Know”).

    Meanwhile, the employees at Mushnik’s are sprucing up the flower shop because of the popularity of the rapidly growing Audrey II and the revenue that it is bringing in (“Closed for Renovation”). Seymour is having difficulty providing enough blood to keep Audrey II healthy. When Seymour stops feeding the plant, Audrey II reveals that it can speak (in a demanding voice) and says that, if fed, it will make sure that all of Seymour’s dreams come true (“Feed Me (Git It)”).

    Here’s the song “Feed Me (Git It)” on YouTube:


    1. Yves Smith Post author

      Yes, and in the Broadway version, Seymour gets devoured by Audrey, but in the movie rendition, Seymour survives. So which will it be?

        1. s spade

          In this version, Audrey and Seymour continue doing fine until everyone else either dies or raises a bigger army than they have. Don’t hold your breath waiting for things to change, except to get worse.

    2. JGordon

      History has shown time and again that any regime of centralized money creation will be corrupted with time. The reason is that it seems to be a universal axiom within the human species that power attracts the corruptible. Or the already corrupt.

      The mistake of people who promote various elaborate and intellectually magnificent monetary/political theories is that their logically beautiful theories will always be subverted when put into practice. For example, we now have a Fed that was originally created as the “lender of last resort” but which, with time, has become the “lender of only resort”. But only to elites. Meanwhile everyone not elite gets to eat austerity and deflation. But this was a predictable outcome, and it’s why elites are generally always in favor of systems like the Fed.

      The key then is not to try to come up with a better centralized monetary/political system, but to come up with a system that fundamentally rejects centralization and empowers the individual and local communities.

      1. Jim Haygood

        ‘I’ve no doubt that Congress will gets its act together sooner or later so that’s only a delay.’

        Hasn’t happened in our lifetimes. But pigs may yet fly!

        ‘Although the initial burst of bond-buying may have helped to stimulate demand in 2010 and 2011, the current strategy is now doing very little to stimulate economic growth and employment.’

        Primarily the economy responds to changes in policy, rather than its absolute settings and levels. That is, ‘What have y’all done for me lately?’

        Eighty-five billion a month of deranged counterfeiting is the New Normal, and our jaded economy shrugs it off like an addict who’s adapted to a dose that would kill a newbie junkie.

        In the wake of a burst Ponzi bubble, almost nothing will make the economy scream like it’s 1999 again. How do you spell relief?


  4. plantman

    Yves says: “In other words the confusion is systemic and is the new normal.”

    Yes, and where there is confusion, there goes volatility too. So expect more roller-coaster action in the near-term.

    It seems to me like Bernanke has backed himself into a corner and doesn’t know how to get out. I don’t think, however, the fed’s decision is based on the condition of the economy at all. On the one hand, Bernanke doesn’t want to be held responsible for the bubble he’s inflated in bonds and stocks (The latest evidence is CLOs. check Reuters yesterday) And on the other, even lopping off a lousy $5 billion per month has the Fed scared the markets are going to dissolve into salt.

    So, what to do??

    What makes the whole matter more complicated, is I think investors figured out Bernanke’s dilemma on Friday, which is why the Dow dumped 185 in the afternoon.(The gov closure BS is pure red herring) This is a case where uncertainty IS effecting outcomes. I expect more investors to cash in and wait for some indication of direction.

    Forward guidance, anyone?

    1. psychohistorian

      Without investment employment will not improve and social devolution continues apace.

      At some point the world economy locks up and the plutocrats and their minions spout another chorus of Whooooocouldaaaaanode.

      The response to the global economic lockup is what is yet to be determined. More social repression to feed the plutocrats coffers or…….structural change like that needed to the current rules of inheritance.

      1. James Levy

        Exactly correct. The money created has nowhere to go. To put it bluntly and in old fashioned terms the capitalists are facing a realization crisis in which they can no longer find adequate investment opportunities in plant, equipment, research, and inventories, and so can either sit on their pile like the dragon in Wagner’s Ring or speculate madly and create dangerous bubbles.

        The Republicans and Obama all believe that if they keep stuffing the beast, eventually he will be forced to hire people and raise economic activity. This is not the case.

        As I’ve said before, the Power Elite under capitalism will try any damn trick they can conjure except the one that will work–raising wages and hiring workers no matter what their MBA efficiency experts insist.

    2. MB

      The DOW down 185? Nothing. The Mutual Funds and the DOW had to rebalance their portfolios and brought 3 or 4 major companies on board including Golden Sachs which was up on Monday.. Rebalancing is done on a quarterly basis. Nobody (not even the HFT machines) are going to go long into the weekend. Rebalancing and profit securing. It was not a signal of unhappiness.

      Wall Street is not a true barometer of confidence any more than drag racers gunning engines and doing drags down the street till the cops show up are. It’s just considered performance.

  5. Adriannzinha

    It goes without saying that real unemployment is considerably higher, no matter what numbers the department of labor has cooked. The moment someone’s UI benefits run out and/or they no longer look for work, they cease to be counted as unemployed.

    More importantly, I think the Fed has realized over the past few months that it, the Fed, has become the market…almost.

    Foreign markets have even joined in the chorus begging the fed not to taper. Those foreign currencies have been torpedoed by the mere prospect of tapering, look at what’s happening in India for instance with the Rupee and outflows.

    In short, any sort of tapering would put a big dent in the speculative orgy consuming wall street and the usual parasitic financial elements. And any significant increase in interest rates would see an already too stretched consumer, well, probably break completely between underwater mortgages, massive but still growing student loan debt, and other liabilities.

    I guess the crux of it is just how big can the feds balance sheet become and how long will t-bonds be bought up to prop up the now permanent state of war domestically and the budget that accompanies it.

  6. Watt4Bob

    QE will not ‘taper’ until the TBTF banks have rid themselves of as much of the ‘toxic assets’ as they can.

    And it seems they will decide when enough is enough, you know how that decision has been trending.

    The very worst part of the story looks to be that they will then crash the economy again in order to simultaneously lick the last of the gravy off the plate, and permanently sink the democratic party by hanging the whole mess around Obama’s neck.

    You have to remember their stated intent has been to have a permanent republican majority, and a rock-bottom labor market.

    There’s not much standing in their way.

    OTOH, Wall Mart’s deciding to grant many of their part-time workers full-time status and ‘benefits’ may just signal the dawn of a new ‘Progressive Era’.

    Don’t hold your breath.

    1. Doug Terpstra

      Obama deserves to have the whole mess hung around his neck. Speaking of necklaces, Jesus Christ has this warning for Obama:

      “Situations that cause people to lose their faith are certain to arise. But how horrible it will be for the person who causes someone to lose his faith! It would be best for that person to be thrown into the sea with a large stone hung around his neck than for him to cause one of these little ones to lose his faith. So watch yourselves!” (Luke 17:1-3)

      Yikes, the purported second-coming better hope JC doesn’t return.

  7. Jefemt

    Great article, although objectively, there is NOTHING that convinces Congress will eventually get its feces aligned….

  8. Trent

    Yves, i’ve been reading about this for five years. I’ve moved all over the political spectrum since then, i’ve read millions of articles, most extolling reflation. Can you present a reason why liquidation would be that terrible? I for one am slightly attracted to the idea of chaos, slightly, but still even a managed liquidation would by the government would be preferable to what we have now. Wouldn’t liquidation bring justice along with it? That’s the beauty of capitalism when it functions as it should, liquidation is like like justice, blind.

    “liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”

    1. James Levy

      The problem is that “liquidation” would mean the immiseration of millions and the death of thousands here and many more around the world. Clinics and food pantries would close or be overwhelmed and become ineffective. Domestic violence would spiral upwards as people realized that they were ruined and their dreams of retirement destroyed. Suicide would spike. School attendance, especially high school and college, would plummet. Worker health and safety would be compromised. And the most atavistic political elements would thrive.

      Only those with guaranteed access to food, clean water, medical care, and private security would be able to ride out the wholesale liquidation you speak of. And that would be a big fat reward to the elite who have those things and put us in this situation in the first place.

    2. Massinissa

      Where in GODS name did you quote that ridiculous last paragraph from?!

      How can you be so naive as to believe something like that could fix EVERYTHING including apparently peoples morality or supposed lack thereof? -_-

      By the way, when you say “When capitalism works as it should”, when exactly WAS that exactly? The 1890s?

        1. Doug Terpstra

          Yup, Andrew W. Mellon, Hoover’s Tim Geithner, great uncle of Richard Mellon Scaife, was the typical bootstrapped aristocrat—who hit a homerun directly from third base. Like Greenspan berating “parasites, who perish as they should”, he believed he had the right to liquidate farmers and labor and otherwise moralize about “less competent people”.

          “Mellon demonstrated financial ability early in life. In 1872, he was set up in a lumber and coal business by his father and soon turned it into a profitable enterprise. He joined his father’s banking firm, T. Mellon & Sons, in 1880 and two years later had ownership of the bank transferred to him.” (Wikipedia)

          And these same entitled, put-upon lords have made a noisome comeback: “AIG CEO [Robert Benmosche] Compares Anger at Wall Street Bonuses to the Lynching of Black People in the South.”

    3. Roland

      Liquidation is the correct solution in our time, although not in Mellon’s.

      Most of the people Mellon wanted to liquidate were people actually producing goods and services for others in the marketplace.

      But for us, we need to liquidate an over-financialized economy whose relevance to actual production is at multiple stages of remove. The engineers of finance should be liquidated. Reflation can come afterwards.

      Premature reflation did nothing but leave the same people in charge, continue the bubble, widen the inequalities, and promote even more misinvestment, with heavy long-term costs to society, world order, and the environment.

      Of course liquidation was politically impossible, because the brunt of the liquidation would have borne by the class of people who were in charge. Why would a financialized overclass voluntarily liquidate themselves? Not gonna happen.

      Instead, they’ll push it as far it can go, and when it can’t go farther, they’ll try to keep pushing anyway, perhaps to the point at which large numbers of people in the world get killed.

      We’re talking about the bourgeoisie here. As ruling classes go, the bourgeoisie are more clever than most, nor are they the cruellest. However, among the ruling classes in history, the bourgeoisie as a class are certainly the most cowardly and dishonourable.

      The old aristocratic critique of the bourgeoisie–that they are a class cowardly by nature–has always been valid. Of course, the bourgeois critique of the class bigotry and stupidity of the old aristocracy is no less vaild.

      The bourgeois critique has become, in a world ruled by the bourgeoisie, so much a part of our mainstream historical understanding that we must remind ourselves of the old valid criticisms made when the bourgeoisie were not the dominant class.

      As a proletarian, of course, one can recognize and appreciate both of those ruling classes’ valid opinions of the other.

      1. Trent


        What does it matter what time period the quote came from? Have people changed since then? The only value i got from getting a degree in history is the fact that people never change, ever. Nothing different about people now then during the times of Rome. People are going to get hurt no matter what, say we don’t liquidate massinissa, but the dollar loses the reserve currency status. Guess what, people now can’t afford gas, or heating, or anything because the prices go up substantially and the economy is still maladjusted. This is a lose lose no matter what way you look at it, from the socialist viewpoint to the rand viewpoint.

      2. Trent


        Yes, thank you for getting it. I’m tired of talking about financial things, its all just a substitution for power. I know they would never liquidate themselves, that is the difference between a leader and corruption.

  9. Walter Map

    A related opinion:

    Currency Wars’ Author Rickards Says Fed Will Never End QE…

    Remember, this is the third time they’d be doing this. They stopped QE1, and they had to come back with QE2. They stopped QE2 in June 2011, and they had to come back with QE3 in September 2012. Every time they’ve tried to curtail the easing, they’ve found that the economy tanks, and they’ve had to come back to the table.

    …I think we’ll look back at quantitative easing as one of the greatest failed experiments in history, as one of the greatest economic blunders in history.


    Pull the curtain back and this is what you see:

    The Fed says it will end QE as the (real) economy recovers, but it has no chance to recover because wealth is getting skimmed off by the banksters faster that the real economy can produce it. National economies are getting liquidated to feed the rich, not restored. That’s why the economy tanks when QE is reduced. Even the hint of reducing it sends the financial markets down.

    The Fed’s real objective is to give away as much money to the banksters as possible, and QE does that. Preventing the recovery of the real economy allows the Fed to ‘justify’ continuing the giveaway to the banksters indefinitely.

    But since all real value of the economy has already been given away, what they’ve been giving away is all the future value of the economy, and what they’re really giving away now is future value that can never come into existence because the future economy is so indebted that it won’t be able to produce it.

    They’re trying to hide the asset bubble behind a wall of money, but that just makes the bubble bigger. The bubble will burst and the scam will be exposed once the real economy collapses. QE delays the reckoning but it cannot be delayed indefinitely. The failure to support the real economy, and instead cannibalizing it to feed the banksters, makes economic armageddon inevitable. Only the timing is in doubt.

  10. MB

    The secret message from the Fed:

    We gave you guys (banks and corporate America) a free ride with QE1, 2, 3. You rebuilt balance sheets and built them like fortresses. You continued to pay your bonuses. 95% of the gains in since 2007 have been pocketed by the 1% (Robert Reich, Bill Moyers interview). The crux of stability in a country is employment..no country can be self sustaining if they are outsourcing employment and evading taxes through offshore corporate and individual “legal” strategic evasion.

    One of our criteria is employment to a certain level. Some companies have made efforts, but not enough to meet the threshold. Without a level of motion of money flow, the system cannot function, which is why we are supplying that. All the money that should be going into Bonds which balances the speculation, isn’t. Nobody is satisfied with balance. All the money we have allowed the top to accrue is being hoarded for bonuses, offshore and doomsday, which is a self-fulfilling prophecy.

    Your legislators are bought. They won’t defend the interests of the country – only of the money.

    Is corporate America going to “do the right thing” and employ people, even though they will not maximize profits (ultimately, to themselves) to the fullest extent possible? It won’t supply “investor machines” with the criteria make that company a “buy”. Whatever would happen? Horrors!

    It won’t satisfy the profit/greed mandate for shareholders..whatever would they do? Horrors!

    It won’t supply the executives with the level of bonuses they are accustomed to and are mandated to deliver to keep their jobs … whatever would they do? Leave? Be fired by Boards and Investor Activists? Horrors!

    Your legislators would go to any extreme including shutting down government and starving half the country to fight for money (against Obamacare), till the end. Horrors!

    Support the companies for doing the right thing? Horrors!

    We’ll just wait until we have mass starvation and homelessness, and protests and crime, and then bulk up the militaristic machinery & drones to surveil them and lock em up in privately owned profit center prisons because the taxpayers/govt have to pay a lot of money to keep them. WHATTA business model!

    As in Marie Antoinette, our corporate leaders, political leaders, lobbyist leaders won’t see it coming till it’s too late. Just how far can you take it? History shows you can take it pretty far. How fabulously far can you insulate yourself from the rest of humanity? The great unwashed. Who needs mortgages anyway? They don’t! Who needs food anyway? They can make due with scraps and crap food.

    It’s called the food chain you political bootlickers and corporate titans. Like the ocean that needs all parts of it’s food chain to survive, you go on bingeing for yourself without giving back. The ocean collapses and there is no more of that wild salmon for you and yours. Eventually, you, too are forced to live on synthetic food. And the Fed? Right or wrong, they gave you every chance. They gave legislators every chance. They supplied the life support. Like the sound effect on Mad Money of a gasping flatline, we’ll get there. You’ll get there. Even the money will get there. Will you ask what could I have done? Probably not.

    1. TomDority

      The word symbiosis occurs. We live in and on symbiotic world – it can not be denied – no debate can be had about this fact – it is a fact beyond debate. I propose, further, that we have more than enough science and symptoms around us to make the fair assumption that we have propelled ourselves beyond the realm and, outside the balance of this symbiosis.
      The statement above forces me to the question at hand… why, or, by what mechanism have we propelled ourselves to this cliff edge – why, through the startling progress of man – for the very short time we have existed on this planet – have we come to to this precipitous situation in such a short geophysical time frame?
      Of course, we have had many debates nibbling around the edges and, while we debate and argue, the house we can not in the foreseeable future escape, burns.
      It is the truth we choose not to reckon with – whether it be through ego or hubris, we continue unabated…hurtling toward a destiny that does not need to occur, that through our own co-operation, can be averted.
      My convictions lead me to believe that the oppositional force to true equality and justice is, in itself a human construct – a natural outgrowth of a system that values the acquisition of money over the creation of wealth – (yea, I know my thoughts are falling apart) It is like the quandry one gets into on a lifeboat where, to save the lifeboat from sinking, a forementing kurfuffle and power struggle occurs and, a decision must be made as to who must be thrown over. Well, the very basis of this argument is flawed in my mind – this planet is not a lifeboat – it is the only boat and, the only way to get a good outcome is if we all work to keep it afloat.
      What still drives us to sink it all together? – that human value placed upon money and, our collective mis-understanding of the difference between wealth and money. While those people who control the liquidity (money) act in a purely self-preservationist way and conspire (unconsciously – in the Jeffersonian corporate way)to throw overboard anyone but themselves, we the majority, have at hand, through majority rule, a way to contain and control the utterly desperate thrashings of monied interests who threaten to sink the boat and, without killing them, channel those money extractive interests toward applying those vast sums toward the creation of wealth in public interest and benefit – that being the fixing of our collective sinking boat.
      Harness the energy and productive capacities that science and the human mind have given us – that capacity to self extinct or self thrive in this factually symbiotic world.
      Tax into public use those gains made from public abuse.

  11. NotSoSure

    To me the more interesting question is what happens when the Fed increases QE to 150 billion a month. And yes it will happen.

    1. Walter Map

      Once the patient dies there will no point in applying more leeches.

      The Fed won’t end QE any sooner than that.

  12. Trent

    Mr. Levy, i see this as inevitable anyways. If using debt is consuming in the present from future proceeds, where does that leave us? How many people were born in the present because of debt? If resources are finite, but debt is unlimited, it occurs to me that you have a high probability to waste resources or in the economic parlance “malinvestment”. I agree with the archdruid and the automatic earth, you can’t avoid the day of reckoning. I’d also have you consider that the “elites” entire power is based on assets they have overly inflated to propel themselves above the rest of society. Liquidate those assets.

    1. James Levy

      If you liquidate their assets you also liquidate every middle class person’s retirement savings, including my own. You make it almost impossible to import vital raw materials like oil. With winter coming that means dead people.

      And I don’t imagine you are willing to volunteer to “take one for the team” and drop dead to “decrease the surplus population”, as Mr. Scrooge once said. I don’t see Mr. Archdruid doing so, either.

      My idea would be to claw back the assets and establish a safety net so that as we fall, if we must fall, we fall together, with as few casualties as possible.

  13. TomDority

    You can bet that the real numbers that matter are not – how many jobs are created – and no, a company can not go and willy nilly hire more people….. why? cause your starting the economic engine from the wrong side – and also, to be sure, the superstructure of our economy is set up so that, any gains in the number and amount of people employed in wealth creating activities…. those extra dollars that could inject more demand into the economy, will most assuredly be slurped up by increased economic rent going into private hands instead of the public domain as, the tax system favors economic rent taking activities.
    In my opinion,for example, health care is being debated as a right for all people (i do agree) but, in the bigger economic picture… health care should be treated as a public utility…one where economic rent is not extracted…. more directly, as a public utility, it would not seek a profit and be run as private monopolistic enterprise but, as a public utility, would lower the cost of living and working in this country – there is where you could free up some dollars for demand — as one example.

    Many more examples could be had — it is important to note that big money is on a mission to privatize all things for economic profit – it is why it disparages government, disparages the law, seeks to corrupt those governing and, by that, perverts the Constitution.

    “Credit is a form of infrastructure, and such public investment is what enabled the United States to undersell foreign economies in the 19th and 20th centuries despite its high wage levels and social spending programs. As Simon Patten, the first economics professor at the nation’s first business school (the Wharton School) explained, public infrastructure investment is a “fourth factor of production.” It takes its return not in the form of profits, but in the degree to which it lowers the economy’s cost of doing business and living. Public investment does not need to generate profits or pay high salaries, bonuses and stock options, or operate via offshore banking centers.”
    The above is a quote from an article posted here last year sometime – I am so sorry I have no attribute but, would love to see another article posted by this person.

    “We, the People, are the rightful masters of both the Congress and the Courts. Not to overthrow the Constitution, but to overthrow the men who have perverted it.” – Abraham Lincoln

  14. Yancey Ward

    When has Japan really stopped QE in the last 22 years? Yes, they stopped periodically, but then started up again. I really don’t see why, 20 years from now, we won’t look at the Fed and see the exact same pattern, except, maybe the Fed has accelerated the process so that it has caught up to the BoJ in that both are in QE eternity mode.

    I do think the Fed will try an actual taper sometime before the end of the year, but I do take note that the taper vanished in September about the time that Yellen overtook Summers for the Fed chair race (hat tip to Conscience of a Conservative above for the same observation). So, maybe taper never happens now.

    The next downturn in the economy (and, no, the business cycle has not been outlawed) will swell the federal deficit beyond $2 trillion/yr and cause great tumult in the munibond sphere, so there will be plenty of bonds for the Fed to buy to expand QE as they see fit. Not that I think any of this solves the problems.

  15. S M Tenneshaw

    QE won’t stop unless/until tens of millions of Americans put their bodies on the line to make it stop.

  16. susan the other

    More evidence of that disturbance in the force. This last week has been interesting. Dudley’s remarks about the reverse repurchase facility at the NY Fed, which nobody seems to understand – but it sounds like the Fed can reverse its expanded balance sheet and will expand and deflate in coordination with all the big banks, but to what end? Then that weird blurb about Jack Lew going to Athens which was followed up with another blurb that the US is going to buy Greek bonds backed by national assets – and this coincides with Mutti Merkel’s big vote of confidence keeping Germany stable and hence the EU from imploding. Does this mean our Fed’s largesse is going mostly to Europe to save our TBTF branches over there? Next up is Italy, then Spain and Portugal. And just yesterday and today there is a PR blitz about Clinton’s Global Initiative which is focusing on “sustainable waste.” Now that oddly also sounds like some kinda reverse reclamation facility… And, Oh yes, Warren Buffet aka Berkshire Hathaway is forming a real estate brokerage so I’m not betting on another housing crash. Very weird world.

    1. financial matters

      That’s an interesting observation and may be due to the Fed trying to keep money market funds from breaking the buck. Unfortunately, similar to unemployment, Congress is unwilling to do any of the heavy lifting.

      The Fed seems to be trying to compete with money markets by offering higher interest rates for excess liquidity. This doesn’t really involve selling any of their balance sheet but ‘sterilizes’ this by helping to soak up this excess liquidity.

      And similar to its buying MBS it gives some credibility to these other assets such as Greek bonds that various money markey funds have ventured into.

      These are still papering over mechanisms and we need real anti-auterity pro-employment programs for the long run.

      And a background of fraud prosecutions would also be very helpful.


      1. steve from virginia

        The Fed funnels funds from finance to the Treasury, these funds in turn service the country’s private and public sector debts. The Treasury is underwater but who cares? The government is not a business, it does not have to turn a profit.

        Take away the Fed and funds still flow from finance to the Treasury. That’s how it goes. When the returns on funds turns negative the funds (try to) flow the other way. The alternative is for lenders to unravel … nobody on Wall Street or in DC wants that.

        The central banks have painted themselves into the corner of diminished returns. Whether funneling or not, the results are the same, rates rise due to chronically mispriced risk … nothing the Fed or any other central bank can do about it.

        1. financial matters

          The Treasury needs to be underwater as that’s where the funds come from. The unraveling comes about when sovereigns try austerity measures and pull funds out of the real economy.

          I think the Fed is trying to cover for Congress’s unwillingness to act which is benefiting the 1%. If we had political leaders that were interested in the general public we could tame the Fed and direct resources toward the 99%.

        2. F. Beard

          rates rise due to chronically mispriced risk … nothing the Fed or any other central bank can do about it. steve from virginia

          Wrong! The Fed can keep nominal interest rates near zero FOREVER because, you see, the Fed has a “printing press.”

          Please concede this self-evident point?

  17. craazyboy

    If I really stretch, I see hope at the end of the tunnel.

    If the Fed buys all the treasury bonds and MBS out there and being issued – and if the HFT ‘bots trade all the stock – then we have whittled Wall Street down to nothing (except derivatives) and can finally focus on what left – the business cycle and why aren’t companies hiring (enough)?

    The Fed will contemplate:

    Do HFT ‘bots Dream of Wealth Effect? (Do Androids Dream of Electric Sheep)

    The rest of us may wonder:

    If there is a Fed but nobody hears it, can we still have a recovering business cycle?

    If ZIRP = 8% car loan and 12% credit card , did interest rates go down?

    If housing bubbles are bad, is “re-flating” housing with cheap mortgage rates good? Does Toll Brothers really employ that many people?

  18. Hugh

    We live in a kleptocracy. The Fed is a major engine of it, and QE is one of its largest schemes. All the official announcements are just hype to con the rubes and continue their looting.

    The Fed has been waging a war on labor for 35 years and has been a, if not the, principal reason labor’s wages have been flat over that period. Do you really think that a Goldman Sachs alumn like Dudley gives a rat’s ass about unemployment? It is just so much shamanistic mumbling before he casts the bones and declares that the signs are not yet right and QE must continue.

    No one at the Fed has any interest in fixing anything. Its discussions are shams. The only real differences are not if, but how we are to be looted. That’s it. There is nothing else.

    1. Walter Map

      Which is very much my own position.

      The Fed is certainly aware that its policies prevent the real economy from recovering, so its promise to end Q.E. when the economy recovers cannot be anything more than a cruel pretence. It’s little different than the promise made the hypothetical employer that “the floggings will stop when morale improves”.

      The question becomes, How long can they continue to loot the real economy before it collapses, damaging the value of their ill-gotten booty? Not that it really matters to TPTB, since their true goal here is not simply more rent extraction, but permanent domination of the victims, the general population, by destroying any possibility that it might find the financial means to fight back: people who have been reduced to destitution will not argue much with their masters.

      1. Doug Terpstra

        Right, it’s only about relative profit—and absolute power. In this regime, inequality is not a bug, it’s a feature. This, and the Grand Betrayal is Obama’s legacy.

    2. Doug Terpstra

      Right, correct answer: the Criminal Reserve will taper when and only when TBTF cartel members instruct it to taper and not before—and then only when these same klepto-parasitic predators have had sufficient advance notice to ensure that they profit from the aftermath. This is the beauty of disaster capitalism: creative destruction for profit and power. When the Shock Doctrine regime is ready, the taper will come … with a vengeance.

      The “fed” is a self-serving oligarchic counterfeiting ring that prints money exclusively for its own casino cartel insiders. And since the GFC of 2008, with all GFC insiders still firmly in charge (thanks, odious-O), it has been printing roughly $100 million an hour — $100,000,000 every hour of every day for five years — in order to cover its members’ own obscenely-leveraged bad bets, unload their toxic dreck, and game the stock market with monetary meth.

      The “Fed’s” interest in unemployment is incidental at best, and addressed only thru ‘tinkle’-down, an already thoroughly-discredited economic theory. By this we know, verily, verily, that inequality is not a side effect of “Fed” policy; it’s the goal. That, and the timing of the taper should no longer be a mystery to anyone. This and wars are the essence of Obama’s legacy.

      Referencing the earlier NC post on trading, I can’t imagine anyone trading in such a manifestly rigged market. The idea of “common prior” information in such a snake pit is laughable (without mirth).

      Hussman has another great post on the surreality of the current “market”: Psychological Ether. The last graph is eerie, stunning; (non-insider) traders beware!

  19. Fiver

    Bernanke’s latest move (and testimony) was too cute by half. This Admin and its agents appear to be losing it, lurching from stratospheric outbursts of elite ego to abject retreats in the face of real opposition. Whether re a war in Syria or infinite QE, or omni-surveillance, the pushback, be it from Russia, the G20 or the American people has been far harder than anything anticipated by the Admin or the Fed, both of which have been forced to back off for a re-think.

    The obvious solution is for the Fed, the Admin and Congress to ditch their current game, i.e., “stalement” means the Fed “must act”, and “action” meaning shoveling money at Wall Street. All Bernanke (or whomever) has to do is stop, thus forcing the Admin and Congress to act. While Bernanke has indeed been a moron and corrupt sleaze from the moment he arrived on the scene, the financial damage he’s done can still be undone via legislative action. The notion that both parties would sit on their hands while the economy went further into the swamp is false – it is precisely Bernanke’s willingness to so irresponsibly flood money into the wrong pockets that has provided cover for theatrical “gridlock”.

    Analysts and commentators have to stop discussing these matters as if the agents and actions under discussion deserve to be treated as forthright efforts to make anything better – they are not. Bernanke and Obama and the rest will play this game up to the point where they are called out by serious people everywhere. And when that happens, they will fold, as there isn’t a man or woman of calibre in the entire current US leadership elite.

    Taper on or off no longer matters. Bernanke has blown it as badly as it can be blown. Ditto Obama. It’s simply a matter of what catalyst pushes global and domestic antipathy over the top.

  20. mrtmbrnmn

    Definition #3 for taper in The Free Dictionary is “a source of feeble light”. I would go with that. The frauds keep coming where the banksters (and their Fed co-conspirators) are concerned. No junkie will ever say no to a free bang of whatever turns them on. al-Qaeda of Wall Street will never stop mainlining that free $85 billion/month, until they get the hot shot and it kills them. An outcome much to be desired but na’ ganna happin. So the answer to your question is: No soap. Radio.

  21. RBHoughton

    We talk about employment and confidence when we mean a flood of new investment. Where’s that coming from?

    Some war-torn countries will send their savings over; reparations from Iraq / Afghanistan will help.

    Uncle Ben has been betting $40b on derivitives and the same on the bonds monthly and it just keeps our head above water. Long ago we stuck the flag in the moon – can the creditors be satisfied by hypothecating that mineral wealth?

Comments are closed.