On December 18, 2013, mybudget360 posts:
There is really no backing out of QE without some sort of pain. It is interesting that each time the hint of a taper was made the market responded by pulling back. The markets are fully addicted to this low rate environment brought on by the Fed buying up long-term MBS (mortgage-backed securities) on the cheap. This week, the Fed’s balance sheet crossed the $4 trillion barrier. Of course few people pay attention to the Fed’s balance sheet but the fact that the Fed has created a second housing mania fueled by investor money is startling.
It is fairly clear that pulling back on QE will have an impact on stocks. The entire financial edifice is now building off of the assumption that QE will last forever. This has created deep distortions in wealth and has also created a secondary housing mania where big funds are rushing out to buy real assets with artificially low rates.
To the contrary, the Fed has become more aggressive in buying up MBS via their QE operations. The Fed is now essentially the mortgage market. In spite of this poor allocation of resources, wealth inequality in the US has only become more pronounced. As we have highlighted before most Americans have very little invested in the stock market so the gains here are of little consequence to the vast majority. Companies have used the economy to cut wages and also to slam employee benefits. Behind the scenes however high level executives especially in the financial industry have used easy money handouts from the Fed to lever up once again in the real economy.
Getting off QE heroine does not look like it will happen. So why the constant discussions of tapering? The Fed is a giant confidence game and many are starting to realize this. Banks understand that any sort of unwind will impact the stock market so better to chase yields in real assets and crowd out regular households. This is why inequality keeps getting worse in the US in spite of the stock market being near a record high.
Own the Future or Be Owned!
http://www.mybudget360.com/addicted-to-quantitative-easying-fed-balance-sheet-4-trillion/
