Why talk of Fed “tapering” is just talk

Investors expect the Fed to begin reducing QE as early as this summer. However, whether or not the Fed follows through on “tapering” largely depends on whether the US economy can stand on its own two feet without support from the central bank? Our view is that it cannot and this article examines why that’s the case and why talk of “tapering” is just talk.

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Where would UK property prices be without QE & ZIRP?

In response to the 2008 global financial crisis the government in Britain slashed interest rates to 0.5%, a policy known as ZIRP (zero interest rate policy), and embarked on a £375 billion program of QE (quantitative easing). These measures arrested the fall in property prices, but the question is, where would UK property prices be without QE & ZIRP?

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Recommended Reading: It’s all one trade

The world’s finances may be reaching critical stress-points, and as Bill Fleckenstein points out in this excellent article, the recent cracks that have started to appear in the Japanese and US bond markets could be as significant as the first payment defaults that occurred during the subprime mortgage meltdown.

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The Big Picture: From banking crisis to sovereign debt crisis to currency crisis (diagram)

Last week’s article ‘The Big Picture: From banking crisis to sovereign debt crisis to currency crisis’, provides a brief outline of each of the macro forces and trends that are currently impacting the global economy and financial markets. Today’s article attempts to show these forces in visual form so that investors can begin to understand the interplay between them.

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Examining the global crack-up boom: Part I

Since the 2008 financial crisis central banks around the world have created in excess of $12 trillion. Not only has their policy of ultra-lose money created another unsustainable boom in asset prices, it is looking increasingly likely that it will end in what Austrian economist Ludwig von Mises called a “crack-up boom”, i.e. a complete breakdown of the monetary system.

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This will end badly but not yet

Since the onset of the global financial crisis governments and central banks have been attempting to bring about economic prosperity by creating money and pushing it out into the global economy. After almost six years however, they have failed to produce a lasting recovery, or indeed anything close.

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Taper Talk, Act 2

While the Fed’s taper talk has been tapered and then un-tapered, the market may now be tapering the Fed rather than vice versa. Let’s assess Act 2 of the taper talk and the implications for the markets, including the dollar and gold.

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Are Banks Finally Ready To Start Lending?

In normal times, today’s combination of record low interest rates and massive infusions of capital into the banking system would ignite the mother of all expansions. That it hasn’t has confused the economists whose textbooks clearly state that it should. And it has convinced the Fed to just keep upping the ante with QE after QE.

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Price inflation approaching

There is some evidence in the UK of a pick-up in consumer spending. There are two likely factors behind this, the first perhaps being seasonal, aided by the fine weather. The second is less obvious, but combines with the first to encourage purchases of big ticket items; and this is cheap consumer finance coupled with growing expectations of higher interest rates in the future.

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What’s next for the Dollar and Currencies? Updated Merk Outlook August 2013

In the short to medium term, the U.S. dollar and currencies are heavily influenced by the actions of the Fed. As the Fed may be reading tealeaves as much as anyone else, we may be facing particularly high policy uncertainty that, in turn, reflects on elevated volatility in the bond and currency markets. The good news is that this may yield opportunities for the prudent investor.

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Why QE Can Never End

The Fed knows that the US economic recovery remains very fragile which is why it has completely backtracked on talk of reducing its asset purchases. The fact is QE will go on until the market, not government, puts a stop to it.

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