Thursday, October 16, 2014

If the Fed has to Revive QE Again

It appears there will be plenty of scapegoats available to blame (instead of admitting that the US recovery is based mostly on Fed stimulus). Fed officials have been busy this week laying the groundwork to prepare the markets for the idea that QE could be revived if need be. But they have made sure to also point the finger other places (Europe) to explain why it might happen. Now China might also be a convenient scapegoat based on this article.


This has been quite a week so far. The stock market continues a sharp plunge. Oil prices falling sharply. Gold and silver trying to decide what to make of all this. Fed officials quickly coming out to try and calm the markets by saying QE can be revived if need be. The Guardian UK runs this article. Here are the lead paragraphs from this Guardian article:


"Combined tightening by the United States and China has done its worst. Global liquidity is evaporating."

"What looked liked a gentle tap on the brakes by the two monetary superpowers has proved too much for a fragile world economy, still locked in "secular stagnation". The latest investor survey by Bank of America shows that fund managers no longer believe the European Central Bank will step into the breach with quantitative easing of its own, at least on a worthwhile scale."

But the US Fed officials say Europe is the problem. Here is a quote from the Bloomberg article linked above:

"Bullard, who helped lay the intellectual groundwork for the Fed’s quantitative easing program, said U.S. economic fundamentals remain strong, and he blamed recent financial-market turmoil on downgrades in the outlook for Europe.'

As noted above, there seems to be plenty of available scapegoats around if the Fed has to ramp QE back up again. It's Europe's fault, right?  But wait, the Guardian says its the US Fed's fault (along with China) for "tightening".

The news article linked above says China is preparing for its banks to have a "debt implosion". So there is another available scapegoat the Fed can draw on as well. After all the UK Guardian has already pulled China into the mix for blame. If you can figure out from all that if the US is really in a genuine recovey or not you are a better analyst than I am.

As we sit and watch all this, keep in mind that not that long ago everyone was talking about strong global growth and a strong US recovery that would probably see the Fed raising interest rates sooner than expected. This is why we HAVE to stay on top of all this and keep watching. Things can change quickly as this week has shown.

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