Here we go again. Federal Reserve board of governors are being quoted in the media, speculating about an early “tapering” of the Fed’s Treasury and MBS buying program. Last week’s absurdly massaged employment and GDP reports has some in Wall Street and the media begin to fear the “T” word again.
Who can blame them? Truth is, this so-called recovery off the 2008 is a sick joke that has only benefited the top fifteen to ten percent of the population. The middle class is shrinking and the poor are falling deeper into economic debt serfdom. The bond market is in a bubble, and equities are only at elevated levels on account of “money printing” that counter-balanced the trillions created by the crash in the banking and shadow banking sector. It’s only rational that the media and Wall Street freak out every few weeks.
Today, Bloomberg reported:
“Some discussion of tapering could well take place” next month, Fed Bank of Atlanta President Dennis Lockhart said today in a Bloomberg Radio interview with Kathleen Hays. Lockhart, who has backed the Fed’s stimulus program and does not vote on policy this year, said while inflation will be an important consideration, the decision will not be based on “a single development.”
Dallas Fed President Richard Fisher, who has said he wouldn’t rule out backing a reduction in bond buying by March, said in a speech in Melbourne today that monetary accommodation “becomes riskier by the day.”
Economists forecast the Fed will delay tapering asset purchases until the March 18-19 meeting. Policy makers will probably pare the monthly pace of bond buying to $70 billion at that time, according to the median of 32 estimates in a Bloomberg survey Nov. 8. The group next meets Dec. 17-18.
Mark Twain once famously quipped, “If you tell the truth, you don’t have to remember anything.” Odd as it may seem, there’s some truth in that saying relevant to our economic situation. Federal Reserve Board Members must continue this good cop, bad copy, taper-on/taper-off BS because they don’t have any other practical alternative. QE must continue. That’s just a fact, unless policy makers and the general public are willing to deal with a massive economic downturn that would come as the bond buyer of last resort — the Fed — curtailed purchases and interest rates moved up 200 to 350 basis points over the course of six to 18 months, assuming “honest” tapering. Forgettaboutit.
But with the holiday retail selling season upon us, emphasis was placed on presenting the appearance of strong economic data last week. I discussed on SD’s Weekly Metals & Markets Warp last Friday, including the history of birth/death model revisions. The birth/death model added 126,000 jobs to the official count of 204,000 for October’s monthly “gain,” just in time to support consumer confidence.
We’ll likely hear more taper talk until the 10-year bond yield gets a bit closer to the 3% rate. That’s the level that killed tapering talk in early September. But for another week or so, perhaps they think they’ll score a twofer: win more time as they continue to sacrifice virgins down the volcano known as inflation expectations, currently dormant and well satiated from previous sacrifices (jawboning, etc.) while holding the fiat system and this whole confidence game together for a few more quarters than otherwise possible.
The bond market is going to have the last say, and no one wants to hear it.
