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Fed finally tapers its stimulus


Butifldrm
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Wonder what the Stock Market is going to do?     DOW Jumped 200 points.  Manipulation or Not?

 

Fed finally tapers its stimulus

By Annalyn Kurtz  @AnnalynKurtz December 18, 2013: 3:55 PM ET

 

 

131218145454-bernanke-fed-taper-620xa.jp

 

 
WASHINGTON (CNNMoney)
Federal Reserve officials decided Wednesday to start gradually reducing their massive economic stimulus program.

Beginning in January, the Fed will buy $75 billion in bonds each month, down from the $85 billion it had been buying since September 2012.

"In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases," the Fed said in a statement.

The Fed decided to cut back on both types of bond purchases -- mortgage-backed securities and Treasuries -- by $5 billion per month each.

The bond-buying program has become so large, it's expected to push the Fed's assets to $4 trillion this week -- money the Fed basically created out of thin air.

The new cut represents the beginning of a gradual wind-down process which Wall Street has nicknamed "tapering."

But the complete end to Fed stimulus is still probably years away.

Fed officials have been stressing lately that tapering does not mean "tightening." In fact, the Fed extended its commitment to keep short-term interest rates "exceptionally low" until either the unemployment rate falls to around 6.5% or the inflation rate exceeds 2.5% a year.

At a press conference immediately following the announcement, Bernanke stressed that the Fed's actions did not amount to a withdrawal of support for the economy. "Nothing we did today was intended to reduce accommodation," he said.

Most officials expect rates to rise in 2015, despite the fact that inflation will likely still be below the target at that point.

Bernanke also explained that the Fed had "enhanced" its forward guidance on keeping interest rates low.

"The committee is determined to avoid inflation that is too low, as well as inflation that is too high," Bernanke said.

But rates will remain low for a while, so consumers can still expect to lock in historically cheap rates on mortgages, car or business loans, albeit probably not at the record lows seen earlier this year.

Stocks jumped following the announcement, with the Dow gaining 200 points after the news.

Related: Will the market actually cheer tapering?

How we got here: Traditionally, the Fed has used low interest rates to stimulate the economy in times of stress, but in the most recent financial crisis, it was forced to take unprecedented measures.

First, the Fed slashed its key interest rate to near-zero in 2008.

Next, in a program known as "quantitative easing," or QE, the Fed started buying bonds like U.S. Treasuries and mortgage-backed securities in an attempt to lower long-term interest rates too.

That second move came in three rounds that have since been nicknamed QE1, QE2 and QE3.

Among them, QE3 was the only program that wasn't given an explicit end-date. Instead, the Fed said it was looking for substantial improvement in the job market. But there's room for interpretation on what exactly that means. The Fed already botched some of its communications surrounding the word "substantial."

Back in May, for example, Chairman Ben Bernanke said he believed the Fed would start to taper "later this year," ending the bond-buying program completely in 2014, when the unemployment rate falls to around 7%.

Wall Street believed him, and stocks started falling and bond yields started rising over the summer.

But then the Fed met in July, September and October without taking action, and theunemployment rate fell to 7% in November, but still there was no taper.

Bernanke's perilous 8-year journey
 

Only one Fed member -- Eric Rosengren of the Boston Federal Reserve -- formally dissented against Wednesday's decision. He felt that unemployment was still too high and inflation was still too low to begin pulling back on stimulus.

Bernanke will attend one more policy meeting next month, before his term as Fed chair ends January 31. The rest of the Fed's exit strategy will have to be left to his presumed successor, Janet Yellen.

President Obama nominated Yellen for the position in October, and the Senate is expected to confirm her this week. bug.gif

 
Edited by Butifldrm
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QE: The greatest subsidy to the rich ever?
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Published: Wednesday, 18 Dec 2013 | 2:13 PM ET
By: Robert Frank  | CNBC Reporter and Editor

 

QE boost to the wealthy
Many of the gains from QE have gone to financial assets, reports CNBC's Robert Frank. The intent of the program was to help the overall economy.
Every Ferrari dealership in the country should have a framed picture of Ben Bernanke in their lobby. It should read: "Our #1 Salesman."

The largesse of the Federal Reserve over the past five years has amounted to one of the largest ever subsidies to the American wealthy—fueling record fortunes, record numbers of new millionaires and billionaires, and an unprecedented shopping spree for everything from Ferraris to Francis Bacon paintings. The prices of the assets owned by the wealthy, and the things they buy, have gone parabolic, bearing little relationship to the weak, broader economy.

On Wednesday, the Fed decided to start the long-awaited taper, dialing down its purchases of mortgage bonds and Treasury securities by a combined $10 billion. But the core of its program will remain through to 2014. And even if the Fed ends quantitative easing altogether next year, it's become increasingly clear that much of the gains from the program have flowed to the top 1 percent.
More millionaires have been created over the past five years than during the entire eight years of the Bush administration. According to Spectrem Group, there were 2.3 million new millionaires created between 2008 and 2012. This year, the number will likely grow by at least 200,000, which would bring the millionaire population past its previous record in 2007.
(Read more: Will the Grim Taper be a body blow to the wealthy?)
During the Bush administration, between 2000 and 2008, 400,000 new millionaires were created (the total number of millionaires increased from 6.3 million to 9.2 million between 2000 and 2007 but the number fell to 3.7 million in 2008 due to the financial crisis).

Kelvin Ma | Bloomberg | Getty Images
Ben Bernanke
According to Wealth-X, the top 10 billionaires in America saw their fortunes grow by a combined $101.8 billion this year.

The reason is simple: Fed policy has fueled a surge in the value of financial assets. Since the wealthiest 5 percent of Americans own 60 percent of financial assets, and the top 10 percent own 80 percent of the stocks, those gains in financial assets have gone disproportionately to a small group at the top.
Or as James Grant, of Grant's Interest Rate Observer said Tuesday on CNBC's "Squawk Box," the money is all "going to Greenwich" Conn., the wealthy hedge-fund haven.

Stanley Druckenmiller, the billionaire founder of Duquesne Capital, called the Fed's policies "the biggest redistribution of wealth from the middle class and the poor to the rich ever."

(Read more: Druckenmiller: Fed shifting money to rich from poor)
It's not just asset wealth that's become more unequal. The income gap has also grown since 2008. According to Berkeley economics professor Emmanuel Saez, 95 percent of the income growth in the U.S. between 2009 and 2012 was captured by the top 1 percent. That's due largely to compensation that's tied to stocks—either through options or shares.
Some argue that the Fed has "punished savers" and helped the rich. That's only partly true. If you look at which segment holds most of the interest-bearing savings or CD deposits in the U.S., it's the wealthy that hold the most. The top 10 percent holds 70.5 percent of interest-earnings bank deposits, according to Edward Wolff, the economist and wealth expert at New York University.

All of that wealth and income piling up at the top has created huge cash hoards by companies and the rich. The savings rate of the wealthiest 1 percent soared to 37 percent this year—and more than three times their savings rate in 2007, according to a study from Harrison Group and American Express Publishing.

(Read more: The real facts about inequality)
Americans with at least $100,000 in disposable income have at least $6 trillion in savings, and that number could double by 2014, according to the study.

The burgeoning plutonomy is also fueling a global shopping spree by the rich. The top two most expensive collector cars ever sold were sold in 2013—a $29.7 million Mercedes and a $27.5 million Ferrari. This fall saw the most expensive art work ever sold at auction—a Francis Bacon triptych for $142 million at Christie's.

(Read more: Millionaires grow cautious about the market)

And Ferrari is already sold out of its latest supercar—the $1.4 million LaFerrari. While the Federal Reserve policy hasn't shown signs of stoking everyday inflation, it has inflated the assets and consumables of the wealthy.

"You say, 'There's no inflation?'," Grant said on CNBC Tuesday. "How about Wall Street? Stocks and bonds and art and Ferraris and farmland, assets are up."

—By CNBC's Robert Frank. Follow him on Twitter

@robtfrank .

 

http://www.cnbc.com/id/101283037

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They are still devaluing the dollar at around 800 billion a year at 75 billion a month

5 years ago the us m2 money supply was around 8 trillion

Now it's at around 12 trillion

And continuing to grow on the backs of working class with no wage increases to compensate the devaluation

Stocks increase their value with each passing month so while they devalue the dollar your best place for your money is in the stock market where stock prices are adjusted accordingly

My question is why aren't they adjusting wages accordingly

They claim it's to even out global wages so we can export more products competivly

The more products needed the more jobs are needed even though we are not increasing our wages with the devaluation process called quantive easing

So as we grow poorer those who invest in stocks will be compensated

Stock investment helps grow businesses

The bottom line is misleading

When they claim the market is growing its really staying the same in value only the numbers of dollars that each share of stock costs is changing and that only changes according to how much they devalue the dollar

Obama will claim the economy is growing when in reality it isn't

All your products will go up in price with the dollar devaluation

But they will hold your wages down so they can sell American products overseas

The rich stay rich

The working class still must work to survive

Ya might as well just sell everything you own and invest in the market till they are done replacing you with Mexican labor

Looks like those social security checks won't be buying much in the future

Don't take the early package of ss you will be very poor in your late years

Republicans are right

Social security cannot succeed its a failed policy dependent on constant devaluation of the dollar for survival

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When my mom was young and they told her she would be getting a thousand dollars a month from social security she thought wow

I can live off

That was in the late 1950s

She voted for those smart democrats all her life

Well she gets around 900 month

You should ask her now how she feels about living off 900 a month now in this economy

If there wasn't any social security people would prepare better for their future

There's got to be a better way

But the democrats will lie constantly telling you that social security is the only way

They got you by your balls

Now its a minority in the USA that use their own brain to take care of themselves and they are demonized by those same democrats as greedy

I personally would never believe any democrat about anything

By the way do ya think my mom can afford to buy a car pay insurance pay for a apartment on her own buy groceries and clothes pay for cable tv and Internet with her 900 a months so check

She's 77 years old

Should she get a job ?

What a crock of

I know in the past few years people been saying as is not a retirement but suplimental check but they say its for those who don't have anything

Well if you have nothing this check is just something you got to give right back to apart be able to pay your bills

She lives with family and is taken care of

Just think if you have no kids your screwed

Anyway put away some money for retirement and plan on it being around 3000 a months worth at least that 900 doesn't get it

Look at the picture of bernanke above

How's he doin ?

Sittin in that beat up used car in rags

He's the one printing up money and devaluing what we have worked for

I guess he's getting paid very well to explain to us how this is good for us

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Thanks Butifldrm for the great post..... and nice additional info  TBomb.... thanks guys.... And love the one liner summary AmericaInc, could you please do that with the translated articles that come over from Iraq.... :lol: :lol:

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  • 4 weeks later...

dontlop is correct... when I started work, I was getting arond $20 a week in 1961 as a 13 or 14 year old, and at 18 I was being paid a grown mans wage of $35 a week.

I paid my taxes for 49 years... and now I struggle to survive, because I was promised that if I worked hard and paid my taxes, I'd be looked after in retirement.

THE FUCKIN BASTARDS LIED, AND THEY STILL LIE.

 

A grown mans wage in my country is now about $550 a week (minimum wage), and the bastards give me a old age pension of just over $400 a week.

My house rent is $285 a week... you work it out.

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  • 2 weeks later...

DONTLOP,

I'm sure your making reference to American companies outsourcing to Mexico so I won't take it personal. But I want to share a story. Last summer I was traveling to sacramento Ca. going through the delta where there is a lot of farming. That particular day there was an extreme heat warning and citizens were being encouraged to hydrate and stay indoors next to their coolers or HVAC systems. While I was listening to this on the radio I saw hundreds of Mexican farm laborers bent over in 110 degree heat picking the watermelons that the fat ARSE Americans were going to eat, while hydrating indoors near their coolers. Many of these fat ARSE Americans were no doubt bit ching and moaning not only about the heat, but how little their SS check is buying these days. I guarantee you none of these entitlement junkies would ever work bent over in such conditions as it is beneath their dignity. Your comments about the financial system I mostly agree with as it is spot on. Thanks for letting me vent my frustrations with what I see as additional problems that need adjustment.....IMO

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