The Fed is thinking about cutting back on QE like I think about becoming a scratch golfer. I do think about it. - FACOD - Friend and colleague of Dave, who plays a lot of golf but has no hope of ever becoming even close to a scratch golferThe Fed is now serving up rainbows, unicorns and fairy tales. And that mindless, moronic mouthpiece of Federal Reserve intentional deceit, Jon Hilsenrath, is more than happy to put it all in print. Our system, especially as it operates in NYC and DC has become analogous to one big New City street shell game. Keep your eye on the ball, NOT where they want you to think the ball is so that they can fleece you of your money.
So the rumor of the Hilsenrath article about Fed QE "tapering," curiously released 20 minutes after the Comex close Thursday in order to enable the paper gold market manipulators dump a lot of paper in one of the most illiquid trading periods for paper gold in any given 24 hour period, finally hit the tape Friday afternoon.
The timing of a late day Friday release, after the stock and bond markets had closed for the weekend, is curious as well. I'll let the readers decide why.
Having said that, I know for a fact that the Fed will not be "tapering" anytime soon. I know a bank executive who recently met with Fed staff in DC. To a man they admitted to this person that no one - as in "nobody" - at the Fed has any clue whatsoever how Bernanke and the Fed can possibly even begin to extract itself from QE, let alone start unloading it's massive $3 trillion portfolio of Treasuries, mortgages and insidiously toxic assets.
But why do we need inside word on that? Play the tape forward. Think about what happens if the Fed tries to stop, or even reduce, its rate of bond buying. In the first 7 months of its fiscal year, the Government ran up a deficit of $700 billion, or $100 billion per month. This includes a tax revenue windfall in December from asset selling ahead of the new tax laws that kicked in Jan 1 and it includes the big jump in tax revenues associated with the timing of tax deadline filings. And the economy was not quite in decline, like it is now.
So with all the stars aligned, the Government was still running a $100 billion a month deficit, requiring about $80-$90 billion per month in new Treasury issuance. The Fed was buying more than $45 billion - or more than half of this new issuance - because it is also rolling cash flow from interest into more purchases. I'll leave it to your imaginations to decide what happens if the Fed pulls back on its Treasury purchases, but keep in mind that the economy is tanking and corporate taxable income and worker wages are in decline - all of which means lower tax revenues than planned.
How about mortgages? See previous posts this week for my view on that. But keep in mind that the housing market is starting to soften in most areas and the "organic," buy a home and live in it purchasers, are having to resort to using - more often than not now - subprime quality FHA financing. That paper, my friends, is being bought by the Fed and is guaranteed by you and me.
One more point: how quickly we all forget that just last week the FOMC issued a statement which implied that it stands ready to lower interest rates if necessary. I guess that moron Hilsenrath doesn't get that particular information feed from his Fed source.
Sure the Fed can start "tapering" QE, but it would also have to be willing to live with the consequences. We know Bernanke isn't willing to live with the consequences of what he's done, which is why he's leaving in January. And there isn't a politician alive - except may Ron Paul - who is willing to live with consequences of the Fed reducing QE. Even more catastrophic, the Fed itself has no clue how it will unwind QE. Keep your eye on that little red ball - not the criminal hands moving the shells around in a manner designed to rob you of your money.