Gyroscopic Investing

Basically this is Bernanke trying to calm the markets and saying his put is still in play. They only have decided upon this small taper because of the "apparent" economic improvements.

Well, what do you guys think? Does the economy improve from here and the stimulus go away? Or will it falter and the FED come back with even more? Do you believe him when he says not to worry they'll keep the money flowing?

As much as I hate to say it, I half believe Bernanke. I think they'll keep printing right on through 2014 and 2015.

http://finance.yahoo.com/news/trim-qe-f ... iness.html

Inflation: 1.5%
Unemployment Rate: 7%

The fed will continue its "stimulus."

PS. Why Quantitative Easing Isn't Printing Money

As I've been saying for some time, they cannot ever end QE, as then the US deficit would explode skyward due to the tremendous increase in interest rates. They will keep printing until the dollar blows up.

They won't care what happens after the 2014 elections. That is when I predict that the phony economy (with the phony economic stats) will implode.

To be clear, the word "taper" does not mean to "stop" or undo QE. It just means a little less QE. Basically it's still more of the same no matter how you parse the words.

The deficit really has little to do with it from the Fed's Monetary Policy perspective (most of the US debt is short term anyway). If the economy ever improves — and I'm not saying it will or won't — the Fed will stop QE as people will look to the Fed to raise interest rates to prevent a growing economy from overheating. So, I think anyone who says the Fed will "never" stop QE is basically saying that the US will never experience robust prosperity again — and I think that's a bit shortsighted considering that the future always seems to confound us.

But, to be clear, I think QE will be with us for a looong time — I think the economy will continue to muddle along for years. But, to say that we will never have prosperity again? I wouldn't bet on it.

Libertarian666,

If hyperinflation or high interest rates, or some uncomfortable combination of the two, are such certainties, why doesn't the market show any indication of this?

moda0306 wrote: Libertarian666,

If hyperinflation or high interest rates, or some uncomfortable combination of the two, are such certainties, why doesn't the market show any indication of this?

Why did home prices and stocks go up in 2006-2007 when the housing bubble bursting and financial crisis were certain?

I think the answer to this question will answer your question as well.

Kshartle wrote:

moda0306 wrote: Libertarian666,

If hyperinflation or high interest rates, or some uncomfortable combination of the two, are such certainties, why doesn't the market show any indication of this?

Why did home prices and stocks go up in 2006-2007 when the housing bubble bursting and financial crisis were certain?

I think the answer to this question will answer your question as well.

The market isn't very efficient?

Because everyone thinks they are "above average" and will ride the myth on a unicorn until the emperor sees he has no clothes. 

Mountaineer wrote: Because everyone thinks they are "above average" and will ride the myth on a unicorn until the emperor sees he has no clothes. 

Could you flesh this out a little bit more for us?  I'm not really sure what you mean by all this.  I certainly could "think I'm above average" and be in the inflationista camp. I sure would have to think that if I thought that I was one of only a few that understand the disaster that is coming.

moda0306 wrote:

Mountaineer wrote: Because everyone thinks they are "above average" and will ride the myth on a unicorn until the emperor sees he has no clothes. 

Could you flesh this out a little bit more for us?  I'm not really sure what you mean by all this.  I certainly could "think I'm above average" and be in the inflationista camp. I sure would have to think that if I thought that I was one of only a few that understand the disaster that is coming.

I am not sure I can add to what Libertarian666, gumby, reub, and kshartle already said.  I guess I'm coming from the view that markets are very fickle and seldom do what the "experts" predict (e.g. see the various Boglehead polls for beginning predictions and end of year results for the experts).  And from the view that the public in general could care less about the government as long as they are feeding at the trough and get their freebies, and from the view that I really don't think the Fed is smart enough to control the economy long term (e.g. the former Soviet Union made it for 70+ years but ultimately failed), and from the view that I think most of Congress is interested in their own kingship and not much in the interests of the people and that the current President seems to thrive on telling lies and ruling by Executive Order.  Big government has always been corrupt but seems to be increasingly corrupt and we lemmings just let it continue.  And, I realize our US economy is heavily influenced by "funny money" instead of being backed by actual stuff that is worth something.  Thus, I believe we Americans (of the Pleasantville variety where everyone is above average) will glibly coast along until the rug is pulled out from under us.  There are far too many signs that our glory days are coming to an end.  Some examples: decline in our manufacturing capability of physical products such as steel, cars, airplanes, etc. - we have lost our way, an example is that the still disfunctional obamacare website took longer to put in place that it took the US to make all the material required to defeat the Nazis in WWII; seemingly endless printing of fiat money; bogus inflation numbers; bogus employment, or underemployment, numbers; apathy at the voting booth.  Anyway, that is why I indicated we are living a grand myth and the emperor has no clothes but no one will point it out.  I do think however there is hope.  I recently spent some time in Seattle and had the opportunity to speak with several immigrants to the US - all of which are extremely thankful to be here vs. where they came from and seemed to be very hard workers (mostly were Asians) in contrast to the "entitlement crowd" people who have lived here for generations and just like to live off the work of others. 

Thanks for asking me to expound, I always enjoy a good vent session.

... Mountaineer

Mountaineer wrote: Some examples: decline in our manufacturing capability of physical products such as steel, cars, airplanes, etc.

Actually, this is a commonly-believed myth. According to the Cleveland Fed, U.S. manufacturing output has remained steady for the past 60 years. It's manufacturing employment that has fallen:

[img width=500]http://www.clevelandfed.org/research/tr ... 1507-3.gif[/img]

Simply put, we're doing more with less. Just like the agriculture industry, they point out.