The Federal Reserve is
fully committed to its asset-propping strategy: It will raise the economy by lifting
asset numbers.
This is where it is important to remember the Federal Reserve does not care
about economics. The economists at the Fed are central planners. It's not that
they don't like economics, they simply are not interested in, so ignore,
economics. Those of us not so inclined think of asset numbers as prices, be
they shares in the S&P 500 or wheat germ. But the Fed operates in an
abstract world; humanity is a distraction.
At the moment, the Fed's asset-lifting model deigns that the economy, which is
a derivative of asset-lifting, will pass muster when the S&P 500 rises
another 500 points and house prices rise another 11%.
These numbers have been typed into the Fed's model. It summons variables to
achieve those levels. One supposes the waning influence of QE (looking at the
increasing units of QE needed to lift stocks or houses to a specific number)
demands a higher level of QE.
The Fed is currently buying $85 billion of Treasuries and mortgages each month.
This will remove about $1 trillion of securities from the market in 2013 (85 x
12). The effort should be aiding its residential real-estate goal, since a
large part of the U.S. mortgage market is moving onto the Fed's balance sheet.
Yet, there are reasons to think the house-lifting program is waning. One of the
more interesting developments is the widely reported tactic of house builders
holding inventory off the market, or not building houses, to raise prices.
Whether true or not (or, whether it matters or not), there seems to have been
no reaction. What would Eric Holder's Once-in-Awhile Justice Department do if
Big Oil or Big Pharma announced it was doing the same? This is another
(supposed, in this case) example of tolerated flim-flammery in the Crony
Capitalist growth model.
The Fed has not boosted, nor talked beyond, its $85 billion a month
asset-absorption (and money-printing), since, in April 2013, the Bank of Japan
commenced its $80 billion a month of magic wand waving. That is $165 billion of
magic money emitted each month by the central banks of the U.S. and Japan. They
are not alone: "ECB Says Bond-buying Program is Unlimited" (Reuters,
June 9, 2013)
The Japanese experiment is not working as
planned, maybe it's early, or maybe another $80 billion a month will be
introduced. Some recent headlines: "Yen Drops After Abe Adviser Says BOJ
Can Do More" (Bloomberg, May 28, 2013) "BOJ Beat: Mortgage
Rates Rise" (Wall Street Journal, June 1, 2013) "Bond Fund
Smack-down as 10-Year Treasury Yield Surges" (Reuters, May 29,
2013) For the callous observer, watching everything Chairman Bernanke taught,
wrote, and preached turn into its opposite is a delight.
Continuing in that vein, asset exuberance is slowing down. A new issuance of
Rwanda bonds would probably not pass muster today. (See: "Big
Money") Some recent headlines show the change in tone:
"Apple Wows Market with $17 Billion Bond Deal" (Reuters, May
1, 2013) "Rising Mortgage Rates, Home Prices a Lethal Brew" (Yahoo,
May 29, 2013) "U.S. Bond Funds Suffer Second-biggest Withdrawal Since
1992" (Bloomberg, June 7, 2013) "This is Increasingly Looking
Like an Emerging Market Meltdown" (Business Insider, June 11, 2013)
"Global Sell-off Hits U.S. High-yield Market (TD Waterhouse, June
11, 2013) "Apple Bonds Lose 9% in Six Weeks" (CNBC, June 12,
2013) "Rising Mortgage Rates Elicit Fears They Could Hurt Recovery" (Washington
Post, June 18, 2013) "Mortgage-bond Failures Reach Most in 2013 as
Prices Drop" (Bloomberg, June 20, 2013) "Fed Chairman Bernanke
Optimistic About the Economy" CBN News, June 20, 2013)
"Drunken Ben Bernanke Tells Everyone at Neighborhood Bar How Screwed Up
the Economy Is" (The Onion, August 3, 2011)
Central planning is failing. This means we will get more of the same. After
that, the central banks plan to hand out money. Gold fell below $1,300 and
silver below $20 on June 20, 2013. Get it while it's cold.
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