Poll - When will the FED taper?

[Kshartle]

Anyone want to venture a guess? Any economic "gurus" out there? Maybe we're smarter than all the investment experts also.

[Pointedstick]

Where's the option for "I don't know and I don't care?" Isn't that what Harry Browne probably would have said?

[Kshartle]

Where's the option for "I don't know and I don't care?" Isn't that what Harry Browne probably would have said?

I imagine he would say that about 95% of our discussions.

[Reub]

Right after next year's elections.

[moda0306]

Can we add an option:

"When unemployment and core inflation fall into a tighter balance."

This would be my vote.  I just don't know exactly where "tight" is, or when they will occur.

[Kshartle]

Can we add an option:

"When unemployment and core inflation fall into a tighter balance."

This would be my vote.  I just don't know exactly where "tight" is, or when they will occur.

It's not about knowing, it's about guessing. They've been saying the same thing you are so the point is when do you think that will be?

The final option doesn't have a time because it's the not what they're saying.

[moda0306]

Well I think that by Dec. 2014 we will still have high-ish unemployment, low workplace participation, and lots of underemployment, with low inflation, so I think it will be a ways off.  Now they might try it, but I'd imagine they'll immediately pull back.

Now if the fed finally wakes up and sets their inflation target to 3% instead of 2%, that alone could actually help, but I think we need to improve balance sheets via adding nominal assets to them, not swapping them to induce lower interest rates, so I VASTLY prefer fiscal policy.

In 2009 we should have had a full payroll/SE tax holiday for everybody, and businesses.  That would aquiesce everyone, and wouldn't have grown government... I mean I think we should have also employed resources to infrastructure repair and a Mexico wall, but for the most part I don't want to push real infrastructure into make-work... I'd much prefer a subsidized work-force retraining program that will have our technical colleges helping under-educated adults transition into more technical roles.

But I'm totally derailing this thread... Unhijack!

[moda0306]

Besides, I tend to think that long-term rates are set not so much based on QE, but on expectations of future short-term rates.

Melveyr does an excellent job of analyzing this.

If long-term rates were set as anything less than as an expectation of future short-term rates (with a certain risk premium built in, of course), this would give the market amazing arbitrage opportunities on the yield curve.

And we both tend to think those opportunities don't tend to exist for long before the market prices them back to where they should be... based on future short-term rate expectations.

However, this could be incorrect, as an indication that the fed will allow rampant inflation and still keep rates low would probably "break" long-term bonds because who would want to hold an asset that the fed is so obviously abusing both in the face of inflation, and causing it in the process.

[dualstow]

4th quarter of 2015

[l82start]

i am going to go with my first response from another thread,

much like like budget cuts in spending... tapering probably just refers to a reduction the amount they had planned to increase QE by...

and they can do that any time they want, or whenever spouting now meaningless jargon appeases the politicians who want to go back to their constituents and say "see i helped cut that evil money printing"

[Gumby]

Don't know and don't care because my assets protect me either way.

Quantitative Easing is nothing new. The government did it during the 1930s (more than doubling bank reserves in the process). It eventually ended — without hyperinflation, mind you. It's barely even noticed in history books now.

http://research.stlouisfed.org/publicat ... /mtpub.pdf

With regards to your poll, you're basically you're asking us to call the beginning of the end of the Great Recession and only giving us a two year window. We could just as easily muddle along for years.

[Kshartle]

With regards to your poll, you're basically you're asking us to call the beginning of the end of the Great Recession and only giving us a two year window. We could just as easily muddle along for years.

No I'm asking when you think the FED will reduce it's monthly asset purchases. If you believe it will occur only when the Great Recession is beginning to end so be it. If you believe it might not happen for many more years I have to ask how you can believe that the QE can actually help if 7 years into it it still hasn't worked?

When you understand the effects of QE you understand it can never get the US out of recession. The QE has to stop first.

[Gumby]

With regards to your poll, you're basically you're asking us to call the beginning of the end of the Great Recession and only giving us a two year window. We could just as easily muddle along for years.

No I'm asking when you think the FED will reduce it's monthly asset purchases. If you believe it will occur only when the Great Recession is beginning to end so be it. If you believe it might not happen for many more years I have to ask how you can believe that the QE can actually help if 7 years into it it still hasn't worked?

When you understand the effects of QE you understand it can never get the US out of recession. The QE has to stop first.

FWIW, I agree with Gumby: the Fed will reduce asset purchases when they see the economy (and employment) improving to their satisfaction.  After all, that is what they have said they would do.  And in the Bernanke era, communication about expectations seems to be a big part of the Fed's tools.

Whether or not QE actually helps the economy much is a different question.  Once you understand what QE is, you will know it is simply an asset swap that serves to help drive down long term interest rates.  As PS mentioned in a great post somewhere out in the ether, QE certainly helps the financial economy: lower interest rates drives some into the stock market in search of higher returns.  And, so the theory goes, when stocks go up, people feel wealthier, and when they feel wealthier, they spend more.

Lower long term interest rates are certainly helpful to people who borrow money for things like homes (when banks actually lend).

I personally don't believe very much in the wealth effect.  I am more inclined to think that, in the aggregate, people who have lived through the roller coaster of 2000-2013 are well aware of the nebulous aspects of financialized wealth, and, in fact, don't feel very secure.  Their propensity to spend is more a function of income, and that has been stagnant for quite a while.

And while more bank lending puts more money into the economy, the downside is that there is more debt.  And a debt/credit-based money system, which is what we have, is very unstable.

Ditto. We don't think QE does all that much. It's mostly a non-event that's often misunderstood. So, we don't believe that 7 or 20 years of QE will do a tremendous amount beyond what is described, above (i.e. Helping the private sector deleverage).

KShartle, did you watch the Ray Dalio video on deleveraging, that Mdraf posted? It's all explained in that video and it will clear up a lot of your confusion.

[Kshartle]

KShartle, did you watch the Ray Dalio video on deleveraging, that Mdraf posted? It's all explained in that video and it will clear up a lot of your confusion.

I did. I’ve starting critiquing it. What confusion? What am I confused about?

[Gumby]

You are clearly confused about when policy makers will end QE. Dalio is simply describing how policy makers view the world and what they use to determine when to start/stop QE. You don't have agree with those policy makers, or their policies, but understanding their perspective will allow you to understand when QE will end. If you watched the video, you know that it could be years from now.

[Kshartle]

You are clearly confused about when policy makers will end QE. Dalio is simply describing how policy makers view the world and what they use to determine when to start/stop QE. You don't have agree with those policy makers, or their policies, but understanding their perspective will allow you to understand when QE will end. If you watched the video, you know that it could be years from now.

You are confused about what I think.

I believe it will continue for years.

You believe it will happen when the economy improves. Since QE damages the economy this will not happen.

[Gumby]

I believe it will continue for years.

You believe it will happen when the economy improves.

Then why did you give us these ridiculous poll choices? The only choices are less than two years or an economic meltdown. Many of us believe that the economy can eventually improve and the Fed will taper at that point.

Since QE damages the economy this will not happen.

Says you. However, this isn't the first time QE has been used in history and there is little evidence that QE has ever caused irreparable damage to any economy. If anything history has just proven QE to be ineffective and a non-event.

[Kshartle]

Then why did you give us these ridiculous poll choices? The only choices are less than two years or an economic meltdown. Many of us believe that the economy can eventually improve and the Fed will taper at that point.

so you think it will be past 2015?

I don't know is not an acceptable answer. This is a guess and if your answer is "I don't have a guess" then abstain.

Ridiculous? They said they would taper in Sept. Nov they are saying Oct. I gave you Oct' 13 - Dec 2015.

7+years is not enough and you still think it will be when the economy improves?

What year would you like added? How do you do a poll about when you think something will happen and have "I don't know" on the list?

[Kshartle]

this isn't the first time QE has been used in history and there is little evidence that QE has ever caused irreparable damage to any economy. If anything history has just proven QE to be ineffective and a non-event.

Many, many governments have printed money and spent it in some hope to improve the economy. Has it ever worked? It's usually tha last desperate act of theives.

[Gumby]

Then why did you give us these ridiculous poll choices? The only choices are less than two years or an economic meltdown. Many of us believe that the economy can eventually improve and the Fed will taper at that point.

so you think it will be past 2015?

I don't know is not an acceptable answer. This is a guess and if your answer is "I don't have a guess" then abstain.

Ridiculous? They said they would taper in Sept. Nov they are saying Oct. I gave you Oct' 13 - Dec 2015.

7+years is not enough and you still think it will be when the economy improves?

What year would you like added? How do you do a poll about when you think something will happen and have "I don't know" on the list?

What a joke. You've given yourself a vague open-ended answer that could take years to play out:

"Not until there is a major crisis, either soverign debt or dollar falling rapidly"

That doesn't have a timeline attached to it. If you get to answer with that, then my vote is for:

"Not until the economy improves and unemployment falls."

[Gumby]

this isn't the first time QE has been used in history and there is little evidence that QE has ever caused irreparable damage to any economy. If anything history has just proven QE to be ineffective and a non-event.

Many, many governments have printed money and spent it in some hope to improve the economy. Has it ever worked? It's usually tha last desperate act of theives.

You are confusing Congressionally approved government spending, which comes from the Treasury, with QE. One increases wages, the other does not. As the video explained, as Bernanke explained, and as we have explained, QE does not print money into people's pockets — only Treasury spending can do that. As a supposed "finance major" it's more than a little disconcerting that you are unable to grasp that. The excess reserves created by QE never enters circulation.

My argument is that QE is mostly a non-event. QE has never caused any major inflationary damage to any modern economy — and you can't prove otherwise.

[Bean]

The only thing that gives USD value is you have to pay your crazy high taxes with it or men come with force and take your freedom from you.

QE is taking money away from you with money supply inflation.  The fact the folks on this board miss the forest for the trees on this baffles me.  I think a line in the MR thread says it best: it works, until it doesn't.  Translation: fantasy land.

Edit: Even though I am confident in my stance, I would rather not gamble everything.  So enter all the PP benefits. 

[Pointedstick]

QE is taking money away from you with money supply inflation.

All QE does is swap one asset (bonds) held by banks that aren't lending with a different asset (cash) that the banks then turn around and try to re-buy the asset they lost. I don't see how it expands the money supply. Even if you think that the cash is part of the money supply and the bonds aren't (a reasonable position), the banks aren't actually lending their cash into the economy which is what would actually create the inflation. Instead they're using that cash to buy treasury bonds.

[Bean]

The treasury market increased in size and that asset swap will someday hit the open market directly via a sale or indirectly via new debt to pay debt. So the Fed buys that debt indefinitely with interest or the music stops and there are not enough buyers to support these low rates.

On a side note, what gives value to the FED side of that asset swap? Because it feels like a raw deal.

[Gumby]

The treasury market increased in size and that asset swap will someday hit the open market directly via a sale or indirectly via new debt to pay debt. So the Fed buys that debt indefinitely with interest or the music stops and there are not enough buyers to support these low rates.

If the Fed holds the bond, all of the profits are returned to the Treasury. The banks would rather get the interest so it's the banks and private sector that miss out on the interest income that gets recycled back to the Treasury.

And you are overlooking the fact that QE has been implemented many times, in many different countries, over the past century. There is nothing new about it. In the modern era, QE has never had the doomsday effect that you've described. There is just no evidence to support what you are saying.

And furthermore, the Fed would stop buying when it wants rates to float with the market.