Fed Decides to keep Printing $85 billion/month

[Attic]

We don't know how the economy would do without the Fed printing money. We do know the current economy is bad enough that the Fed, using it's only solution (some could argue it's failed) couldn't even slightly lower the 85billion it prints each month.

Bad sign for sure. Now with deficits falling the Fed will be an even bigger role in the treasury market for which it is already currently the dominant hand.

 

[Attic]

It's also worth noting that the too big too fail banks that began this mess were saved at any cost.

It's not capitalism and it's not free markets at this point.

It's impossible to empower the middle class when all we have is trickle down economic policy during massive employment and income equality problems.

 

[DucatiMonster696]

This is just my opinion and 2 cents.

This move is setting the stage for QE's tapering to be decided by Yellen instead who is actually pro-QE and would not scale it back to any major degree once she is finally running the FED. Bernanke doesn't want to be that guy who removes the punch bowl from Wall Street and allows reality to set in because he want's to head off into the sunset as a "Good Guy". He wants to be fondly remembered despite setting conditions that have not and will not be meet to end QE ad infinitum and thus will IMHO create a scenario in that the FED will have no choice but to act despite the economic fundamentals not being in place for such a scale back and this is when the real fun starts.

Edit: 85 billion of 5 years (2008-2013) is essentially roughly 5.1 trillion dollars that has been used to prop up banks and essentially the markets.

"Druckenmiller: Fed robbing poor to pay rich"

Fast forward to 6:40 to hear what Druckenmiller plain spoken statements were.

http://www.cnbc.com/id/101046937

In an interview on "Squawk Box," the founder of Duquesne Capital said the Fed's policy of quantitative easing was inflating stocks and other assets held by wealthy investors like himself. But the price of making the rich richer will be paid by future generations.

"This is fantastic for every rich person," he said Thursday, a day after the Fed's stunning decision to delay tightening its monetary policy. "This is the biggest redistribution of wealth from the middle class and the poor to the rich ever."

"Who owns assets—the rich, the billionaires. You think Warren Buffett hates this stuff? You think I hate this stuff? I had a very good day yesterday."

 

[mshan]

"We do know the current economy is bad enough that the Fed, using it's only solution (some could argue it's failed) couldn't even slightly lower the 85billion it prints each month."

Honestly, Fed not tapering slightly yesterday, imo, had very, very little to do with perceived economic weakness.

It had much, much, much more to do with 1) countering the large surge in interest rates that had occurred since they started to suggest taper in May, and 2) just like initial of QE3 / QE Infinity last September, it was much more a safety net for financial markets with looming continuing resolution and threat of actual government shut down and default on U. S. debt. (QE1 and QE2 you could argue were definitely targeted at reflating the stock market in hope that wealth effect encourages more spending to allow the economy to recovery, but QE3 to me was always much more of a financial safety net (preventing a precipitous plunge in stock market that mom and pop retail investor or small businesses perceive as OMG it's 2008 all over again, go into cocoon, and completely stop spending again). Also 3) emerging market credit markets have already been severely battered on just taper talk, and they still might not be ready for actual taper to take place without perhaps putting some stress on global "financial stability" (which really does seem to be the goal of global ruling elites since the initial crash / panic in 2008: http://londonbanker.blogspot.com/2011/12/why-i-oppose-financial-stability.html).

And the amount is actually greater than $85 billion per month, because like Bernanke explicitly stated yesterday, they will continue to reinvest dividends and principal from maturing bonds. IIRC, QE3 was put in place because Operation Twist was set to expire, and it added something like $40 - $45 billion per month (mortgage backed security purchases) to the same amount of Treasuries they had already been purchasing (?)

Whether they made a policy mistake yesterday or not (by not following through with taper like they had been telegraphing to markets for quite a while), only time will tell...


immediate reaction: http://www.cnbc.com/id/101045521

after overnight thought: http://video.cnbc.com/gallery/?play=1&video=3000200713

other considerations:

- http://video.cnbc.com/gallery/?play=1&video=3000200710

- http://yragharris.com/2013/09/18/fonz/

- http://video.cnbc.com/gallery/?play=1&video=3000200665

Philly Fed Report (released this morning)

"Business conditions for mid-Atlantic manufacturers bounced back this month to a 30-month high, and expectations about future production soared, according to a report released Thursday by the Federal Reserve Bank of Philadelphia.

The Philadelphia Fed's index of general business activity within the factory sector rose to 22.3 in September, after dropping to 9.3 in August.

Economists surveyed by Dow Jones Newswires expected the latest index to slip to 9.0. Readings under zero denote contraction, and above-zero readings denote expansion.

All major components to the Philly index improved this month.

The shipments index jumped to 21.2 this month from -0.9 in August, now at its highest since May 2011. The new orders index also rose to 21.2 from 5.3, its highest since April 2011.

The employment index advanced to 10.3 from 3.5, marking its highest read since April 2012. The index reflecting the average employee workweek swung into positive territory, to 12.2 from -2.6.

Price pressures in the Philadelphia area mounted a bit this month. The prices-paid index rose to 25.3 from 17.3 in August. The prices-received index rose to 12.7 from 9.9.

Adding to this month's widespread improvement, manufacturers in Philadelphia are feeling optimistic about the future. The expectations index for business conditions over the next six months jumped to 58.2 from 38.9 the month before, now its highest since 2003.

"Firms' outlook showed notable improvement this month, with a majority of firms now expecting to expand manufacturing activity over the next six months and one-third that expect to add workers," the report said.

Expectations for new orders jumped to 62.2 from 39.5, and expected employment index bounced to 31.0 from 22.3.

In a series of special questions, the Philly Fed asked manufacturers how production this quarter will compare to that of last quarter. More than half said they expect production to increase."

http://news.morningstar.com/all/dow...ess-index-jumps-to-223-from-93-in-august.aspx

"Our most important finding is that the impact of both nonfarm payrolls and advance GDP is small and statistically insignificant," says Hatzius.

"In contrast, the Philly Fed index, the Chicago PMI, and initial jobless claims contain a statistically significant and economically meaningful amount of information for growth.

For example, an increase in the first-release Philly Fed index equivalent to a [one standard deviation] surprise (about 8 points) is associated with an average growth pace of our CAI over a 6-month period that is almost 0.3 [percentage points] higher."


http://www.zerohedge.com/news/2013-...xpectations-6-month-optimism-near-record-high

http://finance.yahoo.com/news/goldman-payrolls-shmayrolls-investors-being-174317919.html

 

[LegendKiller]

http://www.latimes.com/business/mon...ve-tapering-stimulus-20130918,0,2236169.story

The fed is not just purchasing government bonds.

Yeah, they are also purchasing ~85% of the current mortgage market bonds, which are almost all Fannie and Freddie securities. "Junk" bonds they are not.

 

[shortylickens]

Thats probably how much American money goes to Latin America for drugs and guns.

 

[mikegg]

This is just my opinion and 2 cents.

This move is setting the stage for QE's tapering to be decided by Yellen instead who is actually pro-QE and would not scale it back to any major degree once she is finally running the FED. Bernanke doesn't want to be that guy who removes the punch bowl from Wall Street and allows reality to set in because he want's to head off into the sunset as a "Good Guy". He wants to be fondly remembered despite setting conditions that have not and will not be meet to end QE ad infinitude and thus will IMHO create a scenario in that the FED will have no choice but to act despite the economic fundamentals not being in place for such a scale back and this is when the real fun starts.

Edit: 85 billion of 5 years (2008-2013) is essentially roughly 5.1 trillion dollars that has been used to prop up banks and essentially the markets.

"Druckenmiller: Fed robbing poor to pay rich"

Fast forward to 6:40 to hear what Druckenmiller plain spoken statements were.

http://www.cnbc.com/id/101046937

Fed started printing $85 billion last year. The first 4 years were less than $85.

I agree that this is a massive transfer of wealth. Who's money is tied to stocks and assets? The rich. Who's money is tied to... cash? The poor.

Stocks and assets are being inflated - almost 100% increase in 4 years. Cash mean while, is losing purchasing power because of inflation and ultra low interest rate.

While 'Murica keeps focusing on shit that doesn't really matter like Travon Martin, they are being robbed of their purchasing power.

 

[Ronstang]

So in other words the Democrats are so inept that the only thing they can think to do is print more and more money making every dollar you save worth less and less.....then again that is what they do, punish the people who do the right thing.

 

[mikegg]

So in other words the Democrats are so inept that the only thing they can think to do is print more and more money making every dollar you save worth less and less.....then again that is what they do, punish the people who do the right thing.

Not really. I don't think this has much to do with democrats or republicans. This is the Federal Reserve. They don't do what the federal government tells them to do.

The President does appoint the Fed head though but Bernanke has been with the Fed since Bush.

By the way, trickle down effect is a republican idea, which is basically what this is.

 

[Svnla]

And here I am, being a saving bee. Why even bother to do the right thing.

 

[Kwatt]

And here I am, being a saving bee. Why even bother to do the right thing.

Currently "savers" are being punished. Inflation is eating your savings. The low intrest rates drive money into the market. Which is then invested and props up the market. If you make some you will do OK. If you lose you are contributing your labor. You get to pay some fees either way.

About 11% of the US pop. directly own stocks. The ones who don't and try to save are being striped of their wealth through through inflation.

Currently "debtors" are being rewarded. Paying your debts later with after inflation $'s. Is the true road to wealth.

There is no way you can save your way to financial security. You MUST take a chance on investing or you MUST be able to borrow at low rates and long terms in order to use inflation.


.

 

[fskimospy]

Currently "savers" are being punished. Inflation is eating your savings. The low intrest rates drive money into the market. Which is then invested and props up the market. If you make some you will do OK. If you lose you are contributing your labor. You get to pay some fees either way.

About 11% of the US pop. directly own stocks. The ones who don't and try to save are being striped of their wealth through through inflation.

Currently "debtors" are being rewarded. Paying your debts later with after inflation $'s. Is the true road to wealth.

There is no way you can save your way to financial security. You MUST take a chance on investing or you MUST be able to borrow at low rates and long terms in order to use inflation.


.

Inflation over the last five years has been significantly below the historical average.

 

[LegendKiller]

Currently "savers" are being punished. Inflation is eating your savings. The low intrest rates drive money into the market. Which is then invested and props up the market. If you make some you will do OK. If you lose you are contributing your labor. You get to pay some fees either way.

About 11% of the US pop. directly own stocks. The ones who don't and try to save are being striped of their wealth through through inflation.

Currently "debtors" are being rewarded. Paying your debts later with after inflation $'s. Is the true road to wealth.

There is no way you can save your way to financial security. You MUST take a chance on investing or you MUST be able to borrow at low rates and long terms in order to use inflation.


.

Who do you know that has ever had financial security through saving in a bank, ever? What wealthy person have you ever known, or heard of, had ever had anything but spending money in a savings account?

"Saving" has never been about financial security for the long-term. It's always a losing proposition.

How can you make money on a short-term riskless demand deposit?

 

[Kwatt]

Inflation over the last five years has been significantly below the historical average.

So has the bank intrest saving account rate.

If the intrest rate savings rate is 0.1% and inflation is 1.5% you are going in the hole every day.

In bank speak that difference is 140 basis points. When the 10 year Tresuary went up that much earlier this summer the market went ballistic.


.

 

[Kwatt]

Who do you know that has ever had financial security through saving in a bank, ever? What wealthy person have you ever known, or heard of, had ever had anything but spending money in a savings account?

"Saving" has never been about financial security for the long-term. It's always a losing proposition.

How can you make money on a short-term riskless demand deposit?

Not talking about making money just saving and not losing it to inflation.
Long term CD's at banks used to keep close to inflation.

Up through the early 70's saving 10% of income in CD's would provide one with a decent retirement.

.

 

[DucatiMonster696]

Inflation over the last five years has been significantly below the historical average.

Now lets factor interest rates over the last 5 years which has been pathetically low especially in regards to traditional low risk savings options available to the average person and the weakening trend of the dollar since 2000 which has speed up since QE has been implemented for a broader picture.

http://www.tradingeconomics.com/cha...te.png?s=fdtr&d1=20000101&d2=20131231&trend=1

*Long term interest rates have been allowed to climb due to risk of volatility being forced into the market by holding them to zero but short term rates which affect average US savers the most have been held down to near or at zero. Additionally these long term rates have climbed much higher than the FED has forecasted leading some to view risk and volatility to be much higher than anyone suspects or the FED is admitting for the long term.

http://www.tradingeconomics.com/cha...ncy.png?s=dxy&d1=20000101&d2=20131231&trend=1

 

[DucatiMonster696]

Fed started printing $85 billion last year. The first 4 years were less than $85.

I agree that this is a massive transfer of wealth. Who's money is tied to stocks and assets? The rich. Who's money is tied to... cash? The poor.

Stocks and assets are being inflated - almost 100% increase in 4 years. Cash mean while, is losing purchasing power because of inflation and ultra low interest rate.

While 'Murica keeps focusing on shit that doesn't really matter like Travon Martin, they are being robbed of their purchasing power.

You are correct. The total is actually around ~3 trillion today. However expectations are that it will eventually hit around 5 trillion dollars by the end of 2014.

 

[mikegg]

You are correct. The total is actually around ~3 trillion today. However expectations are that it will eventually hit around 5 trillion dollars by the end of 2014.

$5 trillion printed. Sky rocketing housing prices and rent prices. Sky rocketing stock prices. Sky rocketing college costs. Sky rocketing healthcare costs.

I don't believe in the 2% inflation every year that the government tells me. I wanted to buy a house and prices have been inflated by 50% in my city in 1.5 years. I lost 50% of my purchasing power in 1.5 years.

 

[OverVolt]

This blows up either way. Doesn't matter if it happens while they are printing money, or under their control in a somewhat timed manner, it will blow nonetheless. The fed is obviously opting for the scarier in the long run scenario, where they blow a really, really, really, big asset bubble and it pops while they are still printing.

Then what?

 

[OverVolt]

As a side note everything is an investment. Cash is an investment, a shitty one, but still an investment nonetheless if you hold it for a long time.

 

[mikegg]

This blows up either way. Doesn't matter if it happens while they are printing money, or under their control in a somewhat timed manner, it will blow nonetheless. The fed is obviously opting for the scarier in the long run scenario, where they blow a really, really, really, big asset bubble and it pops while they are still printing.

Then what?

Then print some more and transfer some more wealth to the rich and call it a "recovery".

 

[OverVolt]

Then print some more and transfer some more wealth to the rich and call it a "recovery".

The concept of ownership gets hazy in an economy where finance to GDP is something like 26%.

Hardly anyone actually owns anything outright anymore. If you stop paying your mortgage, the bank still owns the house and will sell it. So who is going to buy the house other than another bank on behalf of someone else signing a mortgage? What if the population are net sellers of homes? Baby boomers retiring? Lower birth rate? Low household formation rates? The bank is stuck holding a pretty big shit bag huh?

There is no buyer other than another bank. So what happens when the banks need to sell the houses off their books? They can't. Problem is they are perpetuating the same bubble that already burst, so without a doubt we are misallocating resources on a massive scale.

 

[mshan]

Really chuckled at this Zerohedge graphic (Frank Herbert's Dune reference ):

http://www.zerohedge.com/news/2013-...tightening-or-stock-dead-long-live-flow-redux







(As an aside, Dallas Fed president Fisher explicitly said there is no QE Infinity just a month ago on CNBC (August 8): http://video.cnbc.com/gallery/?play=1&video=3000189249)

("there is no such thing as QE Infinity" is at 6:03 mark, but start around 5:45 mark for better context. Also note his comment towards end of video clip that U. S. economy is muscular and fit and is ready to race, IF Congress would just get out of the way (starts around 7:55 mark) (we would be Secretariat at Belmont, 31 lengths ahead of competitors around the world if Congress would just get out of the way).


LOL, The spice must flow... 🙄

 

[fskimospy]

Really chuckled at this Zerohedge graphic (Frank Herbert's Dune reference ):

http://www.zerohedge.com/news/2013-...tightening-or-stock-dead-long-live-flow-redux

Dune is a great book, one of my all time favorites.

Zerohedge is a joke of a website. If you value your money, do the opposite of everything they say.

 

[mikegg]

FYI, Yellen has been named the new Fed chair. Yellen is ultra QE-friendly.