Albert Maslar / September 19, 2013

Quantitative Easing (QE): Surprise! No Taper

“Quantitative Easing” (QE), “twist”, “taper” – they’re are merely words to camouflage the fact that money is printed by the Federal Reserve, created out of thin air with no government oversight or accountability. The rationale is that without the constant infusion of cash, the economy will grind to a halt.

CNBC Wall Street Bull advocates Jim Kramer and Larry Kudlow shill for more support from the FED for more QE3 that is no doubt actually QE4 and QE5 as the printing has been constant. Now there is the current concept to taper off the rate of easing, cutting the $85 billion monthly purchase of federal debt by $10 to $20 billion. Prior to projected tapering there was Operation Twist from September 2011 to December 2012, that, as FED short-term Treasury bills expired, simultaneously it bought long-term notes at lower rates of interest, as the FED stepped up its purchases of Mortgage Backed Securities (MBS) to support the housing market

Wall Street prospers, with constant infusion of capital, printed money that defaults to banks and Wall Street that benefit from added capital that artificially forces up stock prices and corresponding profits for the gambling elite that masquerade as investors. While the economy in general is static, it enjoys marginal growth due to the labor market favoring business which increases efficiency and profits despite often limited or no top-line growth, probably equivalent to the rise in inflation caused by cheap dollars.

CBO warned that long-term debt threatens to overwhelm the federal budget, declaring the long-term budget outlook to be really bad, and predicting that publicly-held federal debt will rise to 100% of GDP within the next 30 years from the already-alarming 73% of GDP it accounts for now. Describing capitulation of Congress to pressure to raise the federal debt ceiling an “unsustainable” fiscal scheme, CBO director Douglas Elmendorf hinted that disaster lies ahead if the best that government can do is continue its tax-and-spend policy over the long term. “The federal budget is on a course that cannot be sustained indefinitely because federal debt is already unusually high relative to GDP. Further increases in debt could be especially harmful.”

The increasing ratio of debt service to GDP is on track to jump from 2% of GDP to 5%, meaning that government will be spending more future dollars to pay for deficit-spending it is incurring now. That, coupled with an enormous jump in federal entitlement spending, up to 200% by 2038, threatens the economy to mirror downward trends in Europe.

Obama is goading Congress in his fight for another hike in the federal debt ceiling to avoid default and a dreaded government shutdown. CBO states that the national debt is projected to reach 100% of GDP within the next 25 years, but as usual, this must be wrong because once indiscriminate printing of money by the FED is reined in, interest rates on debt will probably double from its present level below 3%.

Currently Treasury Notes are on Five-\ year notes yield about 1.5%; 10-year notes about 2.75%; and 30-year notes yield about 3.75%. Eventually, outside of the FED, there will be no buyers for these worthless notes and interest rates would probably double, consuming the entire annual tax base. At that point all bets are off, as the so-called 47% will have nothing to fall back upon except themselves, but by that time their job skills will have rusted beyond repair, and as Greece burned with cuts to entitlements, so will the US burn with rampant riots.

But a funny thing happened on the way to the forum to the surprise of most financial pundits and experts as FED Chairman Ben Bernanke contradicted conventional wisdom by rejecting the Taper reduced amount of Treasury Notes the FED would purchase. The $85 billion monthly purchases of federal government bonds aka debt, breaks down to $40 billion for Mortgage Backed Securities, and longer-term Treasury notes at $45 billion to continue until the mid-December FED meeting.

Come mid-December, there will be reluctance for the FED to taper as that might affect critical Christmas shopping. That brings the issue up to mid-March, 2014, an election year, and then who will have the courage to do the right thing. The FED can kick the can down the road as expertly and surely as does Congress.

It appears the FED balance sheet holds about $3.66 trillion of government notes; equal to about one-half of the official $7 trillion national debt that is only about 10% of debt according to accounting standard debt.

However, Wall Street gamblers were ecstatic with the FED continuing printing of funny money, and turned a decline in the Dow Jones by nearly 150-point increase, a new high, while spearheading a huge rise in commodity prices, with gold jumping about $55 an ounce followed by general increases in basic commodities. The only conclusion must be that stocks and commodities are cheaper to buy now than to hold on to declining value of future dollars.

Why is there not more mention of the fact that government can operate during the ‘shutdown’ as spending would be prioritized to the 60%-64% of normal spending monies coming from regular monthly tax receipts and revenues? Last time there was this threat, nearly one million “non-essential” government “workers” received temporary layoff notices. Just to show how devious politicians and bureaucracies are, these workers are generally given back pay for lost wages once the funding is back in place. The entire government structure is disingenuous, corrupt and weighted against the common good of taxpayers.

Deficit and debt will rise substantially with full implementation of ObamaCare. If Congress seriously wants to defund Obama'Dont'Care, defunding Speaker John Boehner might be the answer. Ron Paul is perhaps the only Washington politician honest enough to campaign against the FED, but he never got the traction from the ensconced incumbents. Congress can do something but that something is always too big, too complicated, too difficult, if not impossible to implement. Eventually, perhaps sooner than expected, it looks like the ink on the funny money will smear and become non-negotiable.

Hope and change has come a long way since Obama first proposed that concept when he ran for President as a community organizer who sold his concept to a gullible eager public that did not realize that change is not always for the better. After Obama was elected he boldly asserted that the “Transformation of America” was about to begin. Unfortunately, so it has. No real jobs with more taxpayers, but more are dependent on government handouts in return for votes and allegiance to the party in power. Lemmings are dependable as they do follow their leaders, false that they may be.

Regrettably, the transformation turned out to be against the Constitution into a changed era in which one person usurped power over Congress and Supreme Court. Change came, but not for the better, but from bad to worse. The Bush II chickens of the two preemptive wars came home to roost, and as usual, each succeeding President seems to outdo the errors of previous administrations, going back to at least FDR since the Great Depression that may seem like child’s play compared to the crescendo building up in America’s fragile economy today.

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