The Taperie is Here

By: Matt Machaj | Mon, Jan 13, 2014
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Based on the January 2013 Market Overview report.

2013 was no doubt quite a bad year for gold investors. The huge sellout was a primary reason for this. Yet despite this major change in long positions, the outlook for gold does not seem bad. In the second part of 2013 a big debate about the central bank's policy was initiated. It was all about Bernankish interventions in the financial market, which resulted in the explosion in the Fed's balance sheet from billions to trillions of dollars. Since 2008 it was no doubt a huge transformation, and one that had a long lasting influence until the present day.

As we last presented our Market Overview the Fed decided to adjust its activity in the financial markets. As we've also seen the decision was much in the spirit of "how much do we have to change in order not to change anything?" The very serious issue to be discussed was the so called "tapering". And apparently it finally happened. The Fed decided to back out from its policy of expansionary buying programs. What does this seeming backing out look like today? We can read in the Federal Open Market Committee statement in December 2013: "Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month".

In other words, every month the Fed will print 5 billion dollars less than in the past to buy additional government securities, and 5 billion dollars less each month to buy additional private assets. That gives us total of 10 billion each month less than in the past, 120 billion less printing every year. "What a great sum of money, what a major shift in policy" - one would be inclined to say, wouldn't he? Now the Fed is going to print 75 billion dollars, not 85 billion dollars as it used to. But wait a minute...

That's like saying that a bath tub is getting empty, because the water is coming in at a 10 percent slower pace. Which would obviously be nonsensical. A reduction in future buying of government and agency assets can be considered as some form of reduction, but let us not be misdirected. The Fed is still promising to print and will print 75 billion dollars each month in order to bid the prices of government securities and private assets. That will give us a total of 900 billion dollars for the whole year - those additional green backs being churned out in order to stimulate the economy. This is no tapering at all. This is a very small friendly creature, which should rather be called "taperie".

Thank you.

 


The above is a small excerpt from our latest gold Market Overview report. If you're interested in my detailed analysis, please subscribe and read the full version.

 


 

Matt Machaj

Author: Matt Machaj

Matt Machaj, PhD
Sunshine Profits' Market Overview Editor
Gold Market Overview at Sunshine Profits

Matt Machaj

Matt Machaj, PhD, is an economist whose research is focused on the monetary policy, the gold standard, and alternative monetary regimes. Matt is a university professor, blogger, publicist, founder of the Polish Mises Institute branch, member of Property and Freedom Society, and laureate of Lawrence Fertig Award.

He is a free market advocate, believes in personal liberty, responsibility, and believes that social power is a better alternative than government power. Personally he believes that intelligence is the most powerful thing in the universe and beyond. He is no fan of conspiracy theories, but likes to study conspiracy practices.

You can read Matt's premium analysis at Sunshine Profits, where he publishes his gold Market Overview - monthly reports that focus on the big, fundamental picture and key things that can affect investors over the long run.

Disclaimer: All essays, research and information found above represent analyses and opinions of Matt Machaj, PhD and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matt Machaj, PhD and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Matt Machaj, PhD is not a Registered Securities Advisor. By reading Matt Machaj's, PhD reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Matt Machaj, PhD, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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