...in a room full of crooks, Fuhrer Ben and the Fed gang were to prove once again that the smart money is still beholden to the Federal Reserve banksters, the biggest crooks of them all. The decision was announced in that bland-as-wallpaper market gobbledespeak that is the native tongue of all Fed chairmen.
Given the litany of failed doomsday prophecies emanating from the Harold Campings and the 2012ers and the fiscal cliffers and the cultists of various stripes in recent years, perhaps we should have expected nothing less than this anti-climactic nothing that arrived so spectacularly after this week's Federal Open Market Committee meeting. Perhaps never before has a non-announcement of a change that didn't arrive been so widely anticipated or caught the markets so off guard.
For the dozen or so people living under a rock this past week who might not have heard the news, the Fed met for their September FOMC meeting on Tuesday and Wednesday, with Chairman Ben announcing the decision not to taper in the after-meeting press conference. This caught nearly the entire economic world off guard, with its almost universal pre-meeting consensus that the Fed was going to start tapering immediately. Going into the meeting, the smart money was betting on a $5 to $15 billion cutback in its current $85 billion a month purchases of mortgage-backed securities and treasuries. But in a room full of crooks, Fuhrer Ben and the Fed gang were to prove once again that the smart money is still beholden to the Federal Reserve banksters, the biggest crooks of them all. The decision was announced in that bland-as-wallpaper market gobbledespeak that is the native tongue of all Fed chairmen:
“Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.”
Or, in plan speak, 'Carry on your pillaging and looting as usual, the Fed gravy train has not yet been derailed.'
But in an environment in which the taper had already been largely priced in, the announcement was enough to make some waves in markets across the board. 10-year treasuries, which had been flirting with the 3% rate since talk of the taper began back in May, plummeted accordingly, dipping down as low as 2.69% before stabilizing slightly above 2.7%. Equities surged as well, as the expectation that the Fed funny money will continue to find its way into the markets buoyed both the DJIA and the S&P, with the former reaching 15,709.58 and the latter 1729.86 before the euphoria began to wear off.
Meanwhile, the hedge effect is kicking in on the expectation that the Fed's QE Infinity will continue to feed the inflation chickens that will one day come home to roost. Precious metals rallied on the news with gold gaining nearly $70 in the first two days of trading (and back down another $30). Oil and other commodities are also up with the USD taking a hit as the “taper = stronger dollar” calculations unwind.
And so it's back to business as usual. As I've been at pains to point out here and in my weekly conversation with Dr. Stan on Radio Liberty in recent months, “business as usual” in this phony, rigged, manipulated market means bizarro world economics, in which bad economic news spurs the markets upward (on the expectation that it means the Fed will print even more money to throw at the problem) and good economic news causes markets to plummet (on the expectation that the Fed will use the good news as an excuse to turn off the free money spigot). It leaves investors and market participants in the strange position of wishing for the worst in the hopes that they can enrich their own portfolio in the wake of the bad news.
According to the Fed's terms, this is success! They say the magic words “no taper” and the markets go ballistic. Think of all the wealth that's been created in the past few days for all those investors! Is it real wealth? Of course not. It's illusory wealth created on the back of the expectation that the dollar will be devalued even more than previously expected, but the Fed gang's trick is to keep people dependent on their pronouncements and awaiting every word from Bernanke's mouth with baited breath. They are the Masters of Reality.
What the Masters of Reality desperately don't want you to ponder too deeply is that their decision to continue on with QE Infinity is a tacit admission that the “jobless recovery” that has supposedly taken place since the Lehman collapse has in fact been a Fed-fueled sham, and that taking away the Fed punch bowl will bring the party to an unpleasant end. Peter Schiff explains in his no-nonsense way:
“The Fed's failure yesterday to announce some sort of tapering of its QE program, despite the consensus of an overwhelming percentage of economists who expected action, once again reveals the degree to which mainstream analysts have overestimated the strength of our current economy. The Fed understands, as the market seems not to, that the current 'recovery' could not survive without continuation of massive monetary stimulus. Mainstream economists have mistaken the symptoms of the Fed's monetary expansion, most notably rising stock and real estate prices, as signs of real and sustainable growth.”
The problem has not been solved, not by a long shot. If anything, it's only been postponed. The Federal Reserve has erected the dam of QE Infinity to protect the phony baloney markets from the consequences of the 2008 collapse. But for each year that they keep that dam in place, the tsunami that threatens to engulf the markets when it is finally released only grows in strength.
Zerohedge, as usual, has the perfect tongue-in-cheek headline to describe the state of the markets: “Party Like It's 1999!” Indeed, the parallels with 1999 are uncanny as they are ominous. In 1999 the Fed began a liquidity injection to help allay Y2K market crash fears. Serious investors were already mocking the ridiculous overvaluations of the tech bubble (ahhh, the halcyon days of “Dow 40,000”!), but the Fed injection helped buoy the markets even further. As a result, those same serious investors all decided to climb aboard the gravy train in the 4th Quarter after having sat the first 3 out, and the rest, as they say, is history. And what a messy story it is, leading from the bursting of the tech bubble to the inflation of the housing bubble to the Lehman collapse to the inflation of the largest bond bubble in the history of the world. So is this a 1999 repeat? Will we see the markets pile on to this rally with the same “irrational exuberance” that set up the first big bubble burst of the new century?
While everyone ponders that question, there are unfortunately still a number of gloomy clouds on the horizon to deal with, economically speaking. The political games in Congress are gearing up again as the government brushes up against its next debt ceiling. The House passed a bill to raise the ceiling on Friday, but it simultaneously eliminates funding for Obamacare. Although that sounds good in theory, in political reality the bill is not going to be approved by the Senate or signed off on by Obama, so this round of negotiations, too, will doubtless come down to the last possible minute, giving the ratings agencies another reason to rethink America's credit rating.
Also up in the air is the issue of the next Federal Reserve chairman. Bernanke will be abandoning the sinking QE Infinity ship when his second term at the helm ends next January 31st. So far the clear favorite among economists remains Janet Yellen, although some argue that Obama has been turned off by her public campaigning for the position. If it is Yellen that gets in though, we can expect to see a “Helicopter Ben” repeat...only more so. Yellen has the reputation of a so-called monetary “dove,” meaning she is very much in favor of easing and will likely keep the Fed party running well into her next term. If Yellen or some like-minded easy money advocate takes over at the Fed, there will be no brake on the QE engine and the inflationists may just be right after all about the ultimate end to this bond-bubble saga.
One of the largest problems on the horizon, however, is that we are exactly back to where we were last May. Everyone knowing that a taper will come at some point, but no one knowing when. Every FOMC member's statements will still be scried by the economic priest class as if they are reading the entrails of a slaughtered pig. Every asset class will continue to turn on the “will they?” / “won't they?” melodrama of the Fed's QE taper teasing. And the market will continue to be wrenched further and further away from any semblance of reality. Judging by how far off the economists already are from that reality (believing the economy to be strong enough for a taper when it clearly is not), one can only imagine what another year or two of the Fed-induced stimulus will do to the markets. And not just at home, either, but all around the world. The taper drama has already almost tanked the Indian economy and threatened to destabilize numerous others around the world.
The question that needs to be the burning political question of our times is: How much longer will the American people allow the Fed to hold a loaded gun to the head of the world economy? And can we afford to wait for an answer to that question?