International Forecaster Weekly

Maybe Qualitative Easing Will Never End

Some feel that QE can end and the economy can do okay without it. Some think that ending QE means the economy will almost instantly enter recession. Some feel the entire world depends on the US...

Bob Rinear | December 18, 2013

If you ask 100 people the question “can the Fed really end its QE program” you’ll get a bunch of different responses. The obvious response is yes or no, but that’s to simplistic. So, I’d like to present a few different views for you to chew on.

One thing that I constantly have to remind myself of is the FACT that for the most part, people on average have NO idea about what the Fed does, has been doing, or what damage it causes. I see this constantly, especially with the young people and the much older people. When I tried to explain to my 70 year old aunt that the Fed has been injecting 85 billion a month to mop up more toxic mortgages and buy the bonds no one else wants, she looked at me like I had 3 heads. Her response? “Didn’t they fix all that stuff during the big economic break down years ago?” Oh boy.

So first you need to understand that the average person on the street generally has no clue what is going on. They have their TV, their job, their football and basketball… and they think they’re informed about things. That’s a problem right off the bat, because a person that doesn’t understand what has been happening, cannot possibly answer the question “can the Fed really ever end QE?” Because they don’t even know it’s happening.

Obviously then, this question goes out to those who are informed. Even there, you get differences of opinion, but not quite as widely. Some feel that QE can end and the economy can do okay without it. Some think that ending QE means the economy will almost instantly enter recession. Some feel the entire world depends on the US and all the emerging markets will go down too. Some think they will never end QE, they’ll just introduce more programs and call it something else.

Here’s where we stand on the whole thing. We “let” the best economy on earth turn into a banana republic. From virtually full employment and AAA credit and lender to the world, we’re now more indebted than any nation has ever been. The economic disaster that was the housing bubble bursting was simply the first ugly consequence of all the years of greed and abuse. It wasn’t the only disaster, it was simply the one that popped first.

The housing market died in late 2006 and into 07. By 2008 we found that most of the mortgages were junk, sub par credit they bundled and sold as AAA investments. To this VERY DAY banks are still holding gobs of this garbage. No one seems to have paid attention, but just 6 years ago we had over 18,000 banks in the US. We’re working on about 7,000 now. The rest went “poof”. So here we are, heading into year 6 of all this stimulus, and money printing and they’re still mopping up the results of that mess. Yet that was only one of many.

Our banking system had run amok, and the housing market implosion popped that bubble. But here’s the issue.. there’s a lot of other bubbles out there, just waiting for their pin. How about the derivative market? Some say it is hundreds of trillions of dollars. How about the debt bubble? How about the credit bubble? Is any of that solved? No, not at all, they just haven’t met their particular pin yet.

But herein lies the problem. It is Bernanke’s billions that keep the pins away. It’s Draghi’s billions keeping the Eurozone pins away. While no amount of bogus money printing creates a sound economy, it can hold off bubbles from popping. This is why we crawl along in this pseudo depression, bumping along, with no real growth, but we don’t implode. Now, what happens if they remove the punch bowl? It moves all those pins a lot closer to their respective bubbles.

Yet this is where the opinions get varied. Some will say something like “The Fed’s have to stop, their balance sheet is too distorted”. I shake my head in amazement. Balance sheet distortion? The whole damn Federal Reserve is a distortion. They “make” money out of thin air. They are counterfeiters. You THINK you know what their balance sheet looks like. Ha. No folks, you see some garbage they produce to present to the politicians. No one knows what these mutants do behind the scenes. Am I to believe they haven’t created billions and shoveled it off to foreign lands? Please. I fully believe these cretins have created trillions we don’t know about.

Second, those that believe the economy is strong enough to do okay without Benji and his jets, seem to live on a different planet than the one I inhibit. Every reading of our economy is distorted to look better than it is. From unemployment to inflation to you name it, we are in NO WAY as strong as they tell us, and that is WITH a trillion a year going into the banks.

So, if no one wants our bonds, and they don’t, If they are still buying up mortgages that no one else wants, and they are, if unemployment is still north of 16% and it is, can you explain to me how the Fed can remove a TRILLION dollars worth of free money from the system, and we “just do fine?” I don’t buy it.

If they toss out a cut to the QE program, it will be “put back” at some time in the future. That’s my guess. Well actually I take that back. I don’t think they’ll do anything Wednesday, but if they did a 5 or 10 billion cut, that still leaves 75 billion a month in play. But any more cuts after that, could be telling us the Fed has decided to exit the business of supporting the economy and we’re on our way to a serious market and economic decline.

They created a monster folks. A monster that likes it’s free money injections as much as a heroin junkie likes his fix. Take his fix away and he gets sick and violent. Likewise, pulling stimulus out of our economy will produce ugly results. We’re addicted to their “junk” and without it, we simply don’t have the economic activity to make up the difference.

We’re going to have QE or some distortion version of it for basically ever. OR, until the time when they have all come to agreement that our current system cannot be saved, and has to be scrapped and “reset”. That is the wild card folks. At some point the world leaders could decide that this particular dollar reserve hegemony is finished, and letting the US economy crash is simply part of the plan.

I don’t know when that will be, but you can bet that’s the turning point. If they started to cut QE, and don’t replace it with something else, then they’ve decided to let things go to hell and let the chips fall. If that time hasn’t come yet, any tapering of the current QE will be replaced by some other program that actually injects MORE money into the system just to keep it solvent.

The Feds created this nightmare and we’re all living through it. It cannot end well. Print for ever and we will eventually inflate ourselves into a collapse. Stop the printing and we’ll grind to a halt. That is the choices that these unelected fools have put on us. I don’t much like either one.