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From David Einhorn of Greenlight
The amount of media and market attention focused on whether the Federal Reserve will taper its quantitative easing (QE) would border on comical if it weren’t so serious. In August, the San Francisco Fed published an economic research paper that estimated that the $600 billion spent on QE2 added a meager 0.13% to real GDP growth in late 2010 (about $20 billion) and that the benefit fades after two years. Given that, what practical difference does it make whether the Fed buys a monthly $85 billion or $75 billion or no additional securities at all for that matter?
We maintain that excessively easy monetary policy is actually thwarting the recovery. But even if there is some trivial short-term benefit to QE, policy makers should be focusing on the longerterm perils of QE that are likely far more important. Here are some questions that come to mind:
No one is sure what the Fed is focused on. After spending several months bracing the market for fewer QE donuts, the Fed decided that it was premature to taper. Even a token reduction (from a baker’s dozen to a dozen?) was ruled out despite the fact that the economic trajectory has not materially changed. We responded the next morning with our own stimulus by ordering jelly donuts for the entire office.
Submitted by Brian LaSorsa via The Ludwig von Mises Institute,
It’s hard to maintain monopoly status in a free market when you have to deal with all that competition and whatnot.
Between other companies’ low prices and new, updated products entering the market each day, it’s almost like Rich Uncle Pennybags is a thing of the past. But fret not!
The politicians of the world would like to offer anyone dead set on controlling an entire industry the chance to shine. So come one, come all — government agencies, cronies, and all their friends — as we present the five best ways to create a monopoly and to ensure you never have to compete again.
1. Regulations. When the cost of doing business is high, make it higher. Small firms can’t survive government imposed regulations while bigger firms can certainly bear the burden, at least temporarily. Taxes, mandates, and especially “safety regulations” (e.g., clinical trials at the Food and Drug Administration) will wipe out your competition before they even have time to ask what the new rules mean. Then hire a lobbyist in Washington. I’m sure he or she will come up with a good reason that the industry should adhere to stricter and more expensive guidelines.
2. Subsidies. There’s no such thing as a free lunch. But, when the government is paying for it, the lunch sure does taste free. Subsidies offer an alternative, consumer-driven focus to acquiring monopoly status. Arbitrary revenue-boosts from the government will allow you to reduce prices to essentially nothing, all while maintaining profitability. You can give away (what used to be) a $10.00 item for free and, with the help of $1 million in subsidies from our nation’s capital, you can stay afloat. Your competitors, however, will have to make do with reality. Even if they somehow manage to slash prices to $1.00 per unit, what kind of customer will pass up free? The subsidy doesn’t have to last permanently, either. It will only take a few weeks before your competitors begin to default on paychecks and other loans without transaction revenue.
You can also take this route without the government revenue injections if you have a contingency plan in the form of a bailout. Both you and your competitors will go bankrupt, but only one (fingers crossed it’s you) will receive CPR.
3. Nationalization. Shout out to government officials! This one’s for you. The easiest and most straightforward way to create a monopoly is to simply write the monopoly into law. Federal control over an entire industry — much like we’ve done with the United States Postal Service — is effectively the prohibition of competition from the private sector. But don’t ever reference the USPS. It’s a terrible (albeit realistic) example of a government monopoly, what with its inefficiency, perpetual deficits, and general lack of regard for any sense of advancement in mail delivery. Rather, tell everyone you want to monopolize “for the good of the people” and then talk about the Department of Education or some other public sector operation people don’t like to criticize in front of company.
4. Tariffs. Neighbors can be annoying. Some are loud and others are strange, but the absolute worst neighbors are the ones who compete with you in the marketplace (and then win). In the beautiful Southwest, this neighbor is Mexico. Companies south of the border produce certain commodities much more cheaply than American companies do, and they have the nerve to think that they can export their inexpensive products to the United States on a whim. We don’t think so. If Mexican companies sell sugar for $2.00 per pound and you charge $3.00, don’t let them satisfy customers like they own the place. Make sure they pay an import fee of $1.01 and it’s guaranteed you’ll win new business one cent at a time. Better yet, propose a complete ban on the sale of foreign goods in your state, city, and town until you’re so isolated from the rest of the world that no one has a choice to buy from anyone except you.
5. Intellectual property. If you have a good idea, why let anyone else have the same one? Take that idea, write it down in the broadest words possible, and send it straight to the United States Patent and Trademark Office, where public officials will (hopefully) grant you the exclusive right to use it. And don’t worry, if someone else thinks of the idea one day later ... too bad. You filed first. Even if someone halfway across the globe comes up with the same idea independently ... too bad. You filed first. Milk your monopoly for all it’s worth. Put a huge price tag on that beast and feel free to ignore quality. What are consumers going to do: purchase your exclusive product elsewhere?
We wish you the best of luck in your venture. You deserve it.
Submitted by Brandon Smith of Alt-Market blog,
Power, or perceived power, is a viciously addictive narcotic. It doesn't matter what political or philosophical background a person hails from, very few have the self discipline or the self awareness necessary to relinquish the trappings of power once they have tasted it. This truth applies to conservatives as much as it applies to liberals.
I began my early political life as a Democrat, and until I came to understand the nature of the false left right paradigm in 2004, my view of the negative within government was slanted entirely against the GOP. When a finally grasped the fantasy of the two party process, I did not let go of my criticisms of the Republican hierarchy as much as accept the fact that the same criticisms applied to the Democrats as well. They are, ultimately, the same entity with the same exact ideological goals hidden by cosmetic differences in shallow rhetoric. I have no interest whatsoever in perpetuating the false left/right paradigm, or giving undue credit to the GOP.
However, as stated earlier, power is a drug, one which the so-called “left” has been hooked on since the Obama Administration took its seat in the White House. While the Republicans have much to answer for (the Bush years are a nightmarish example), it is the Democratic Party, and those who blindly identify with it, that must be addressed today. It is they who are now directly feeding the elitist machine, giving it momentum, and aiding in the destruction of the American economy and culture. It is their madness and thirst for control that is being exploited by the establishment to demonize legitimate activists who seek Constitutional transparency (the only people in this country today who understand the bigger picture and who the real enemies are) thus undermining any chance our society has for a free and prosperous future.
A new propaganda theater has exploded in mainstream media outlets and the liberal side of the blogosphere spectrum. This initiative centers on a not so subtle attempt to connect “Tea Party Conservatives” (basically lumping all people who espouse limited government ideals and constitutional principles under one easy to marginalize label) to any and all of our nation's fiscal and political problems. The debt ceiling debate has added a new dimension to this defamation program, sending leftist talking heads into a bloodthirsty frenzy akin to a Bolshevik street mob. Constitutional conservatives have been compared to “extremists”, “separatists”, “new southern confederates”, “traitors”, “saboteurs”, and “domestic enemies of the United States”. Here is just a sample of the MSM hate parade:
http://www.rollingstone.com/politics/news/republican-extremism-and-the-lessons-of-history-20131010
http://www.salon.com/2013/10/07/tea_party_extremism_has_me_worried_tammy_baldwin_talks_to_salon/
http://www.youtube.com/watch?v=gb6LMB2FX3w
There is a particular brand of rabid shameless zealotry to this rhetoric that I have not seen since the days of the Neo-Con drive to invade Iraq. It's worse in many ways, in fact, because it attempts to link political dissent with “treason” in a very dangerous manner, and sets the stage for an “acceptable level” of totalitarianism. These are the same people who fought tooth and nail against identical tactics only a decade ago, and now, they have happily (and hypocritically) adopted the nefarious methods as their own.
We have gone beyond mere talk into a realm where political witch-hunts may become an Orwellian reality, and it is the “Tea Party” that the establishment wants to burn at the stake. Even now, federal agents are training active duty military personnel to view Constitutional conservatives as “terrorists” bent on annihilating America:
http://www.foxnews.com/opinion/2013/10/23/does-army-consider-christians-tea-party-terror-threat/
Because of this danger, I am forced to dismantle the ludicrous arguments of my former party, and expose the vile and dishonest nature of their motivations. Here is why the loyal left has become a far greater threat to the safety of our country than they could ever hope to paint conservative activists. Here are the reasons why they hate us...
Why Neo-Liberals Distrust Limited Government Champions
In my time as a Democrat I did not always agree with the party line. I believed that if a massive government system was an inevitability, then it SHOULD at the very least exist to help, not harm or control, the American public. I never attached myself to the notion that government was the answer to every crisis. Many liberals, however, do assume that government can be tamed, and if they gain total control of the system through political maneuvering it will somehow naturally gravitate towards humanitarian concerns. Government, in their minds, is a tool they can exploit, when in reality government is a self contained entity that exploits them as tools.
The great downfall of orthodox Republican culture is the blind faith it commonly places in the corporate world and the vestiges of big-business. They believe free markets actually exist in America today (they don't), and that the captains of industry are what drive our country forward. Liberals, on the other hand, also believe that free markets exist in America today (they don't), and that these “uncontrolled” financial organizations are the cause of all our social grief. Liberals are correct to be suspicious of the corporate oligarchy; the professed goal of many banking elites of dominant globalization is certainly a threat to us all.
The problem is, liberals don't really take issue with the concept of globalization, per se. In fact, many of them love the philosophy. They just don't like the idea of “conservatives” being at the helm of such vast change. Liberals attach themselves to government and rabidly defend it because they falsely imagine that government can be used to stifle or destroy what they assume to be a conservative dominated corporate machine. They want the destruction of American sovereignty. They want a system that dictates and micro-manages the citizenry. But, they want that system to operate on their terms and enforce their particular world views, which they believe not only politically correct, but sacrosanct.
In the minds of many average liberals, government is the only recourse to affect their battle against corporate dominance. When faced with a person or group of people espousing the principles of limited government, reduced spending, reduced taxes, and cuts to bureaucracy, liberals immediately presume that those people are seeking to support the corporate oligarchy by de-fanging government and removing their greatest weapon. Tea Party and Liberty Movement conservatives do indeed seek to de-fang government, but we have also broken from the Republican orthodoxy and recognized that government actually colludes with corporate elites on the most vital issues. We understand that they are part of the same monstrosity, and so, we are just as uncompromising in our fight against big government as we are against unaccountable business. This confuses liberals who are so acclimated to the traditional boundaries of debate between Left and Right.
They don't know how to classify or pigeonhole us, and they certainly don't have the capacity to argue with us on a rational level because half the story has gone over their heads. And so, they follow the natural human inclination, which is to hate and despise what one does not understand and what one cannot quantify. In the eyes of bewildered Democrats (and some elitist Republicans) we are extremists, because they have never been confronted before with people who are so fully committed and immovable in their principles. Uncompromising opponents, unshakeable opponents, are the most terrifying opponents.
The Left's Inclination Towards Collectivism
The liberal subculture is permeated with frightened people. They are frightened of authority yet infatuated by authority. They are frightened of independence yet feign independence. They are frightened of the blunt truth in serious matters, yet fascinated by the blunt truth as a form of comedic anesthesia. They like to imagine themselves as socially heroic but they have never had the concrete courage required to achieve a truly heroic deed, which is why they constantly argue that state designated officials are the only people qualified to manage or defend the public interest. It is much easier to hand responsibility over to a man in a uniform who may or may not do anything proactive than it is to take responsibility by one's self.
One of the most off-putting character traits inherent among the many Democrats I've met along the way is a complete incapacity to stand alone against a dilemma. The average liberal is, I'm sorry to say, invariably weak and always searching for someone else to handle their messes for them. Their love of government stems in large part from their desperate need to find a parental figure to cradle them, or a group structure that will reinforce their beliefs without question.
I have rarely if ever seen any substantial measure of individual action or resolve amongst liberals. The activism of the left almost always gravitates towards asking government for permission with as many pleading hands as possible, or asking government to repair a malfunction it created, or begging the system to PLEASE respect their rights. To suggest to them that perhaps they should compete with the system, build their own more honest social paradigms as individuals, defy criminal authority even at the risk of their own lives, or actually physically fight back, is a waste of time.
The liberal activist's dream scenario? A safe majority of the population suddenly and magically standing up together with one mind to achieve a singular goal while facing no meaningful pain, struggle, or risk. They sit around waiting for that day, when we all dawn our V For Vendetta masks and march on Washington D.C. together while the Plutocrats stand down in silent defeat. It is a pointless fantasy with little to no historical precedent.
This is why they treat Constitutional conservatives with disdain. They are incredulous when we state that we will fight even if we are the so-called “fringe”. They are shocked and unsettled when we state that the mainstream view is irrelevant. They laugh at the concept of independent action against the system regardless of the risks simply because they know personally, deep down, that they don't have the balls to make the same stand, and so snide ridicule is their only safety mechanism.
This cancerous attachment to the collective is what makes the “left” so easily manipulated by political elites, who play on that which they fear most to lose - their socialist safety net. The existence of an ideological movement like Constitutional conservatism which openly and defiantly pursues an end to government sponsored collectivism and the crutch of economic socialization is the ultimate boogeyman for the liberal front.
The Liberal Land Of Infinite Comfort
The recent debt ceiling debate was incredibly effective in driving home the insurmountable differences between hardcore Neo-Liberals and proponents of limited government. This conflict is only going to become more pronounced as the next debt debate approaches in the Spring of 2014. The roughly 25% to 30% of the U.S. population that still worships the Obama Administration despite all logic is more than enough cannon fodder for the establishment to throw at us.
They believe we are out to destroy the nation because we “aren't getting our way” on Obamacare. They believe we have placed our political desires ahead of the good of the collective. They believe we are self absorbed extremists; mad bombers strapped with TNT and ready to take everyone to hell with us. They believe our entire movement is a hologram created by the mysterious Koch Brothers – Libertarians with money now lampooned by liberals as secret corporate Decepticons responsible for grassroots activist initiatives that started long before the Koch Brothers ever put money into them. The fairytale is flourishing in their minds, and we are the villains.
More than anything, Liberals want a future of unlimited ease. Some are motivated by a desire to help others, but many are motivated by a desire to help themselves. In either case, they must understand that infinite government growth and infinite government spending will NEVER get them what they want. No matter how hard they wish for it, socialist utopianism will always fail. Why? All government is inherently flawed, because all government is administrated by inherently flawed people.
Constitutional conservatives don't hate Obamacare because we don't want people to have healthcare. We hate Obamacare because it is a horrible solution to a problem that needs a working solution. We hate Obamacare because it makes the existing problem worse, not better (as the past couple weeks of bureaucratic failure have shown).
We haven't abandoned the general good of this country, but we do demand that the founding principles of freedom, independence, and limited government that built this country be considered a priority. There is no “general good” without foundations of honor, reason, and transparency. If liberals are suggesting that the greater good requires us to ignore conscience, reality, and basic mathematics, then I will have to disagree, and I am willing to put everything on the line to defend that position. Are they willing to do the same?
As far as the Koch Bros. are concerned, I don't take orders from them, and I don't know anyone in the movement who does. I've also seen no indication that the Koch Bros have any desire to give orders to anyone in the movement. We do what we do because we BELIEVE in what we do, not because we get paid for what we do. If the Koch Bros didn't exist, the limited government movement would continue on without missing a beat. Let's direct our energies into the legitimate conspiracy of globalization and stop wasting our time with made-up conspiracies perpetuated by the mainstream media, shall we?
Constitutional conservatives have been the only people attempting to inform the American public of the facts surrounding our current fiscal crisis. Some have been doing it for decades. Many of us have been doing it since before the average liberal was even aware that a crisis existed. We are trying to help them, even though we disagree with them on numerous fundamentals.
The bottom line is, whether Obamacare is successfully implemented or not, whether the debt ceiling is raised again or not, whether the Left passes every agenda on its list or not, our system is broken and it is going to collapse. There is no way around it. More debt and more fiat printing means stagflationary collapse. Default and austerity means stagflationary collapse. If liberals want to place blame for this conundrum, then they should focus on the people who actually set the original fire – international and central bankers.
To my former political ideologues, I do not expect most of you to shift to a Liberty Movement perspective. I know all too well that you already think you have the whole of the world figured out and the rest of us are simply to ignorant to grasp your liberal insights. But I do ask that you remember what you read here today. File it away under “Tea Party Propaganda” if you want, but never forget. Your ambitions for a big government you can control will end in disaster. Your willingness to scapegoat Constitutionalists will backfire. The system you deify will turn on you. And, the fake power you think you have gained in the past five years will disappear just as quickly as it materialized.
If you want to avoid being caught in the tides of history with your proverbial pants down, or being used by elitists like pawns in a brutal game of global chess, consider quitting the system entirely and adopting a more independent position. That is what I did, and I can't imagine ever going back. Often it is the philosophies most despised by the mainstream that end up being the most right. The boogeymen of the present sometimes become the heroes of the future.
Via Paul Singer of Elliott Management,
In the U.S., states cannot file for bankruptcy. Cities can, however, and there is a special provision in federal bankruptcy law reserved for cities. Furthermore, unlike countries, states and cities cannot print their own currency. When they overspend or overpromise, they beg for money from the federal government (or state government, in the case of cities), reduce their spending and/or default on their obligations. When the cash register is empty, it is lights out – literally. By contrast, the ability to print money allows countries to get away with long-term insolvency (at least until markets wake up and force them to restructure their obligations).
What is happening in Detroit – a combination of poor and corrupt civic leadership, shortsighted business leaders and overreaching labor unions – is interesting because it was 40 years in the making, but just months in the denouement. It turns out that Chapter 9 of the Bankruptcy Code gives judges tremendous leeway to chop obligations quickly and severely, regardless of the expectations of pension-holders and bondholders.
We see Detroit as the “coming attraction” to a significant number of municipal insolvencies in the months and years to come. Perhaps the pain of the restructurings will improve the behavior of city governments, labor groups and businesses, and perhaps it won’t.
But there is no question that this episode is a precursor to what will happen on the federal level as national promises prove to be empty.
Submitted by Simon Black of Sovereign Man blog,
Do you remember the $700 billion bailout of the financial system in 2008?
It seems these days that most investors do not. People are partying like it’s 1929… as if all the issues and challenges that plagued the banking sector just a few years ago have miraculously vanished.
This thinking is absurd, and even a casual glance at the balance sheets of so many banks in the West shows objectively that the entire system is still precariously leveraged, undercapitalized, and illiquid.
In the wake of the bailout, Congress created a special position to oversee how the funds were spent. Like anything else in government, they used an unnecessarily long name followed by a catchy acronym –
Special Inspector General for the Troubled Asset Relief Program, or SIGTARP.
(The first SIGTARP was a former federal prosecutor who had previously indicted 50 leaders of the Revolutionary Armed Forces of Colombia… just the right man to keep a watchful eye on bankers.)
SIGTARP just released its quarterly report to Congress… and it’s scatching, suggesting that “the toxic corporate culture that led up to the crisis and TARP has not sufficiently changed.”
There are some real zingers in the 518 page report, including:
Moreover, the report calls into question the Treasury Department’s administration of the bailout.
For example, many banks have been delinquent in making TARP payments, or payments to one of TARP’s sub-programs.
Yet while many banks are delinquent by 1-2 quarters, according to the report, roughly 3% of the banks who received funds under the Community Development Capital Initiative are more than –two years– behind in their payments.
Yet the Treasury Department has done nothing to enforce terms on behalf of taxpayers.
Most alarmingly, though, the report throws a giant red flag on the Treasury Department’s deceit.
In 2011, the report states, 137 banks took in billions of dollars of funding from the Treasury under the Small Business Lending Fund (SBLF). They then used those funds to repay their TARP loans.
In other words, they repaid taxpayer money with more taxpayer money.
But the Treasury Department still reported that TARP was being repaid, suggesting in a May 2013 press release: “Taxpayers have already earned a significant profit from TARP’s bank programs.”
Total BS, says the report.
SIGTARP writes that “Treasury should not. . . call these funds “repayments” or “recoveries”. Treasury owes taxpayers fundamental, clear, and accurate transparency and reporting on monies actually repaid.”
Something tells me this woman isn’t going to have a particularly long career in government.
And given the Obama’s administration’s track record against whistleblowers, SIGTARP had better start booking her flight to Moscow. Or better yet, marry a Brazilian.
BofAML's NacNeill Curry remains bullish gold. He notes the impulsive gains from the 1251 low of Oct-15 and break of the 2-month downtrend (confirmed on the break of 1330) imply the medium-term trend has turned bullish. We look for an ultimate break of the 1433 highs of Aug-28, with potential for a push to 1500/1533 long-term resistance. Curry suggests traders buy this dip at around 1310 - warning that this view is nagated with a break below 1251. For those awaiting, a break of 1375 (Sep-19 high and right shoulder off a multi-month Head and Shoulders Top) is additional confirmation of the trend turn.
Buy Spot Gold at 1310, risking 1250, targeting 1450, potentially beyond
And beware, he notes, the S&P 500 is "ripe for near term stalling"
In what is merely the latest humiliating blow to Obama, moments ago, in a 42 to 56 vote, Senate Republicans blocked President Barack Obama's nominee to oversee the FHFA - the administration in charge of mortgage finance giants Fannie Mae and Freddie Mac, which in turn are so instrumental to restoring housing as the primary source of "High Quality Collateral" (and its securitization), which in turn is critical to allow the Fed to eventually step away from QE. The defeat on a procedural vote for the nominee, Democratic Representative Mel Watt of North Carolina, came despite an aggressive White House push in the past few days to round up support. The vote against limiting debate on Watt's nomination was 56-42, four short of the needed 60 votes to move ahead in the Senate. Whether this means that Moody's ADP's Mark Zandi is back on the table as a potential nominee is unclear as of this writing.
As we pointed out back in May, all those mostly financial lobby supporters of Mr. Watt are encouraged to see their money back.
From: In Whose Pocket Is Mel Watt?
Following the earlier reported devastating news for Mark Zandi fans (all one of them, including Mr. Zandi himself) that the Moody's economist/ADP seasonal adjuster, will not be the next head of the GSEs, and instead that privilege will go to North Carolina Democrat Mel Watt, we decided to take a quick look in whose pocket the career Congressman (elected into congress in 1992) truly lies. We are delighted to announce that with Mr. Watt's lobbying dollars coming almost exclusively from Wall Street, Lawyers/Law Firms, and Labor Unions, the $7+ trillion in US mortgages, and sole source of mortgage creation in the US, is in "very good", if just a little conflicted and quite socialist, hands. Mortgage forgiveness-demanding, crony capitalist comrades of the world, unite! (while charging $1000/hour)
Mel Watt's biggest career contributors by industry:
Mel Watt's biggest career contributors by company:
Source: OpenSecrets
It's official - in addition to the S&P, complacency and optimism have just hit all time highs, as absolutely nothing can ever go wrong again thanks exclusively to the stream of central bank liquidity which is rising all sinking boats. Strategas explains:
And so all is well. Indeed, why worry? Uncle Janet has your back now and forever. As for the equity bubble that everyone now admits is clear and present, who cares...
Source: Bloomberg
As the greenback has rallied after holding above the Kijun-Sen, suggesting near term upside risk remains for the rise from last week's low of 0.8890 to extend marginal gain from there, however, as this move is viewed as correction of recent decline, upside should be limited to 0.9068 (61.8% Fibonacci
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Despite yesterday's anticipated resumption of the decline from 1.6258, loss of downward momentum and current rebound from 1.5999 (yesterday's low) suggest consolidation above this level would be seen and above 1.6079 (yesterday's high) would bring recovery to the Ichimoku cloud top (now at 1.6116) but still reckon upside would be
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Euro's intra-day selloff on dollar's broad-based strength and the breach of previous support at 1.3651 add credence to our view that top has indeed been formed at 1.3833 last week and bearishness remains for correction of early upmove from 1.3105 to 1.3575-80, then towards 1.3555 (38.2% Fibonacci retracement of 1.3105-1.3833),
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Although the greenback has retreated after yesterday's rise to 98.69 and minor consolidation below this level would be seen with mild downside bias for pullback to 98.06 (yesterday's low), still reckon previous resistance at 97.80 would limit downside and bring another rise later, above said resistance at 98.69 would extend
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As the single currency has retreated sharply after rising to 0.8585 earlier this week, suggesting a temporary top is possibly formed there and near term downside risk has increased for correction of recent upmove to 0.8450-55, however, reckon support at 0.8430 would hold on first testing. Only a drop below
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Despite yesterday's rise to 1.0497, as the greenback has retreated after faltering below there, suggesting minor top is formed and consolidation is seen with initial downside bias for correction to 1.0400 but reckon 1.0365-70 would limit downside and bring another rise later, above said resistance would add credence to our
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Now that an October taper is out of the question, bored investors, in a world in which fundamentals no longer matter, are looking forward to the next possible FOMC meetings and potential taper announcement dates, with three specific dates sticking out: December/January, which are really one cluster, and June, as possible announcement dates. Why are these dates important: because while a September tapering announcement would have resulted in a $4 trillion final Fed balance sheet (assuming the tapering proceeded to a full QE halt) before even more QE was unleashed, any subsequent taper dates imply a nice round number to the final Fed balance sheet at the end of 2014: either $4.5 trillion, assuming a January 2014 taper, or $5 trillion if the Fed waits until June to announce a tapering.
This can be seen on the following chart from Bank of America.
BofA commentary:
Markets will be especially focused on the discussion around the timing and conditions of tapering. Our Chart of the day illustrates three scenarios, the first of which is a useful reference despite not actually happening: a September 2013 start to tapering that follows the June “framework” laid out by Chairman Ben Bernanke for a mid-2014 end to asset buying. In that case, the Fed’s asset holdings would have grown to around US$4tn. A January start and a slower pace of unwind results in nearly US$4.5tn in Fed assets, while a June start (and similar slow pace to conclude) yields nearly US$5tn. Those are sizable differences.
Another way of seeing the change in market expectations, is the following chart which shows what the current tapering path looks like.
There is of course an increasingly likely third possibility: forget $4.5 or $5 trillion - with increasing chatter of a Fed that is prepared to unleash NGDP targeting, or as it is better known without its technical term: even more turbo printing in an attempt to unanchor future 2% inflation expectations, the Fed's balance sheet may just grow forever and ever.
And with every passing day in which the Fed demonstrates a complete lack of concern about the collapsing pool of high quality collateral which the Fed monetizes at an ever faster daily net basis, this becomes the most probable outcome.
