Buying Program in Reversal?

By: Matt Machaj | Fri, Jan 17, 2014
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Based on the January 2014 Market Overview report.


 

After the announced "tapering" all the doubts were centered around the question, how big the "tapering" is. All trails lead us to speculation about how the so-called backing out could influence the market in the long run. First let us illustrate all the different versions of Quantitative and Qualitative Easings (episode 1, episode 2, episode 3...) that happened since 2009. Here is a graph that you're already familiar with, depicting an immense growth in the balance sheet of the Federal Reserve since 2009. Contrary to graphs presented previously in the Market Overview, which summed up government securities and mortgage backed securities bought by the Federal Reserve and presented them in total:

Government Bonds and MBC Held Outright by the Fed

Almost four trillion dollars in printing has occurred since the beginning of the crises. Naturally many mainstream economists could object and will comfortably argue that it is not really printing, but merely "stimulating". Since we are not cranking up the press and we are not literally handing out the money to people, there is no real printing going on. If there was, the hyperinflationary bomb would probably kill the economy. Rather than that the money is created for the sole purpose of bidding up the prices of various assets (government and bank friends). Surely this is not the usual printing one could expect in Zimbabwe, but this does not change the fact that money is being created in order to sustain various financial beneficiaries associated with the current fiat money order. And this fact alone cannot be omitted.

Four trillion printing/bidding is a big thing, especially in light of the fact that before 2009 the Fed held no mortgage-backed securities, but mostly government bonds (in much, much smaller amounts than right now). Here lies the bailout aspect of the whole mechanism - a certain cocooned part of the financial market is being subsidized. In the case of the government the subsidizing is directed at all government benefactors, whereas in the case of MBS we have obvious crony capitalism at work.

Setting this issue aside, let us stipulate what exactly this taperie is all about. The tapering is not with the big "T", not as many saw it. Is it a big cut, reversal, backing out from the previous expansionary policies? The buying program is still firmly in place and looks as expansionary as before. Actually it is more expansionary than it was in the significant part of the years 2011 and 2012, when the balance sheet was frozen.

We cannot therefore really debate how the change should affect the overall the economy simply because... There is no significant change at all.

Thank you.

 


The above is a small excerpt from our latest Market Overview report. If you would like to learn more about tapering, Fed's approach, general trends in the monetary policies that affect virtually every market, I invite you to subscribe to my monthly Market Overview report.

 


 

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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TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/