...the Fed admits they don't know what they're doing, but also that they can't stop doing it for fear the markets will collapse. With all of that being said, many might be relieved to know that the Fed is winding down their easing operations and have already “tapered” down to a mere $45 billion a month of funny money injection...
The Federal Reserve does not understand how quantitative easing works, but they know it has been a dismal failure that is likely to end in disaster. But don't take my word for it, take the Fed's.
Here's New York Fed president Bill Dudley at the 2014 AEA meeting in Philadelphia earlier this year: "We don't understand fully how large-scale asset purchase programs work to ease financial market conditions".
And here's Dallas Fed president Richard Fisher the Louisiana Bankers Association 114th Annual Convention and Expo last week:
“I am often asked why I do not support a more rapid deceleration of our purchases, given my agnosticism about their effectiveness and my concern that they might well be leading to froth in certain segments of the financial markets. The answer is an admission of reality: We juiced the trading and risk markets so extensively that they became somewhat addicted to our accommodation of their needs.”
In other words, the Fed admits they don't know what they're doing, but also that they can't stop doing it for fear the markets will collapse. With all of that being said, many might be relieved to know that the Fed is winding down their easing operations and have already “tapered” down to a mere $45 billion a month of funny money injection, down from the $85 billion that QE3 started with...
...or have they? In a new article, former US Assistant Treasury Secretary Paul Craig Roberts and fund manager Dave Kranzler make a compelling case that the Fed is even lying about the taper. They point out how Belgium, a country with a GDP of $480 billion, purchased $141.2 billion of US Treasuries between November 2013 and January 2014. Did the Belgian government really just spend a third of the nation's GDP on US Treasury bonds, or was this a Fed purchase being laundered through Belgium? All signs point to yes, including the fact that the sale did not take place through the Fed's National Book-Entry System, but via Euroclear securities clearing system in Belgium, meaning the bonds were taken from the Fed's custodial account, deposited in Belgium's holdings, and reappeared in the Fed's custody.
Why the elaborate ruse? Is the Fed so worried about what will happen with the unwinding of QE3 that they are going to unprecedented lengths to keep it going under the radar? And if so, how long can they continue pulling such tricks before they are caught out? Sadly, I don't think we'll have to wait very long to find an answer to these questions, and it may not be the answer we want to hear.