• 13 hours American Households Are Absorbing The Costs Of The Trade War
  • 19 hours Security Breach Reveals Crypto Mining In Ukrainian Nuclear Plant
  • 2 days Bankruptcy Is The Only Choice For Many Retailers
  • 2 days Are Copper Naysayers Missing The Big Picture?
  • 2 days Jerome Powell's Impossible Challenge
  • 3 days Economists Call For Recession In 2021
  • 3 days Hong Kong Billionaire Loses Big On Canadian Energy Play
  • 3 days Trade Tensions Weigh On South Korea, Japan Relations
  • 4 days Lithium Hype Can't Live Up To Supply Realities
  • 4 days Tesla Scrambles To Salvage Its Stumbling Solar Business
  • 5 days Why Silicon Valley Is Moving To Toronto
  • 5 days Hong Kong Residents Are Fleeing To Taiwan At A Record Pace
  • 5 days Trickle Down Tax Cuts Aren't Helping Bolster GDP Growth
  • 6 days Wealth Gap Widens Between Baby Boomers And Millennials
  • 6 days How Investors Are Playing Uncertain Markets
  • 6 days Demand For Cash Is On The Rise
  • 6 days The Best Way To Ride The Gold Rally
  • 7 days Corn Industry Reeling After Shocking Ethanol Decision
  • 8 days Gold Miners Eye Further Upside
  • 8 days Alibaba Exec Sets Record With $3.5 Billion Brooklyn Nets Purchase
Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

Billionaires Are Pushing Art To New Limits

Billionaires Are Pushing Art To New Limits

Welcome to Art Basel: The…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Matt Machaj

Matt Machaj

Matt Machaj, PhD, is an economist whose research is focused on the monetary policy, the gold standard, and alternative monetary regimes. Matt is a university…

Contact Author

  1. Home
  2. Markets
  3. Other

The Taperie is Here

Based on the January 2013 Market Overview report.

2013 was no doubt quite a bad year for gold investors. The huge sellout was a primary reason for this. Yet despite this major change in long positions, the outlook for gold does not seem bad. In the second part of 2013 a big debate about the central bank's policy was initiated. It was all about Bernankish interventions in the financial market, which resulted in the explosion in the Fed's balance sheet from billions to trillions of dollars. Since 2008 it was no doubt a huge transformation, and one that had a long lasting influence until the present day.

As we last presented our Market Overview the Fed decided to adjust its activity in the financial markets. As we've also seen the decision was much in the spirit of "how much do we have to change in order not to change anything?" The very serious issue to be discussed was the so called "tapering". And apparently it finally happened. The Fed decided to back out from its policy of expansionary buying programs. What does this seeming backing out look like today? We can read in the Federal Open Market Committee statement in December 2013: "Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month".

In other words, every month the Fed will print 5 billion dollars less than in the past to buy additional government securities, and 5 billion dollars less each month to buy additional private assets. That gives us total of 10 billion each month less than in the past, 120 billion less printing every year. "What a great sum of money, what a major shift in policy" - one would be inclined to say, wouldn't he? Now the Fed is going to print 75 billion dollars, not 85 billion dollars as it used to. But wait a minute...

That's like saying that a bath tub is getting empty, because the water is coming in at a 10 percent slower pace. Which would obviously be nonsensical. A reduction in future buying of government and agency assets can be considered as some form of reduction, but let us not be misdirected. The Fed is still promising to print and will print 75 billion dollars each month in order to bid the prices of government securities and private assets. That will give us a total of 900 billion dollars for the whole year - those additional green backs being churned out in order to stimulate the economy. This is no tapering at all. This is a very small friendly creature, which should rather be called "taperie".

Thank you.

 


The above is a small excerpt from our latest gold Market Overview report. If you're interested in my detailed analysis, please subscribe and read the full version.

 

Back to homepage

Leave a comment

Leave a comment