Wednesday’s release of the much anticipated Federal Open Market Committee (FOMC) meeting minutes basically said the Federal Reserve will continue to run its printing presses at the same speed at which they have been running since late last year—until further notice.
So when will the Fed pull back on its $85.0-billion-a-month quantitative easing program?
It depends on economic conditions. The meeting minutes said “…if economic conditions improved broadly as expected, the Committee would moderate the pace of its securities purchases later this year. And if economic conditions continued to develop broadly as anticipated, the Committee would reduce the pace of purchases in measured steps and conclude the purchase program around the middle of 2014.” (Source: Federal Reserve, August 21, 2013.)
There is no clear answer as to when quantitative easing will end, and that causes uncertainty for the financial markets.
If the Federal Reserve decides to taper quantitative easing in September, as many now expect, the pullback will be insignificant. Even if the Fed decides to cut printing by 20% a month, the Fed’s balance sheet will still be destined to surpass four trillion dollars soon! Yes, the Fed will have cumulatively created $4.0 trillion in new money out of thin air!
And let’s face the facts: quantitative easing hasn’t done much for the U.S. economy or for the average American Joe. Quantitative easing has made the banks stronger and richer, while risking hyper-inflation.
One not-so-funny thing: take the earnings of the big banks out of the S&P 500 second-quarter earnings, and you’ll find the remaining companies, collectively, experienced negative earnings growth in the second quarter of 2013. It’s scary stuff—and it’s proof that quantitative easing is helping the banks more than any other sector of the economy.
What He Said:
“When I look around today, I see falling stock prices…I see falling house prices…and prices falling for retail goods stores. The media has it all wrong blaming (worrying about) inflation. In my opinion, the single biggest threat to the U.S. economy and to the Fed in 2008 is deflation. You can bet the Fed will expand the money supply and drop interest rates aggressively as deflation starts to rear its ugly head.” Michael Lombardi in Profit Confidential, December 17, 2007. Michael was one of the first to warn of deflation. By late 2008, the world economies were embedded in their worst state of deflation since the Great Depression.