James Rickards – Why the US Fed won’t taper QE, author of Currency Wars-The Making of the Next Global Crisis
Is the US painting itself into a corner from which there is no good way out?
HILTON TARRANT: US job growth came in lower than expected in August, and the unemployment rate dropping to a four-and-a-half year low as workers gave up the search for work in the US could delay the Federal Reserve’s scaling back its massive monetary stimulus later this month.
All eyes are on the Federal Open Market Committee meeting in just over 10 days’ time. Until today’s data it was widely anticipated we would see some easing or tapering of the stimulus programme. But James Rickards, author of Currency Wars: the making of the Next Global Crisis, believes that we won’t see any cutting back at all of the Fed stimulus because the American economy remains just too weak.
JAMES RICKARDS: I don’t think it’s going to happen. Certainly it’s on the agenda in the sense that the Fed is talking about and thinking about it – they certainly would like to taper. I don’t think there’s much doubt about that. And to a great extent the markets have priced that in.
I don’t think the Fed actually will taper in September – in fact, I don’t think they’ll do it at all this year and the reason is I’m sort of taking the Fed at their word. They said we’d like to. Tapering is the jargon, it’s reducing asset purchases, but asset purchases are the way they print money. So what they are really saying is we are going to print less money….
San Francisco Fed head John Williams – known for his extremely dovish views on monetary policy (and support of record accomodation) – appears to have taken some uncomfortable truth serum this morning. In a speech reminiscent of previous “froth” discussions and “irrational exuberance” admissions, Williams explained:
- *WILLIAMS SAYS POLICY MAY YIELD ASSET BUBBLES, UNINTENDED RESULT
- *WILLIAMS: ASSET-PRICE BUBBLES AND CRASHES ‘ARE HERE TO STAY’
- *WILLIAMS: ASSET-PRICE BUBBLES ARE ‘CONSEQUENCE OF HUMAN NATURE’
His words appear to reflect heavily on the Fed’s Advisory Letter (from the banks) from 3 months ago  – warning of exactly this “unintended consequence.” This, on the heels of Plosser’s recent admission that the Fed was responsible for the last housing bubble , suggests with the black-out period before September’s FOMC about to begin, the Fed is sending us a message that Taper is coming – as we know they are cornered for four reasons (sentiment , deficits , technicals , and international resentment ).
How Bubbles Form…
and How They Pop…
The central bank — soon to celebrate its 100th anniversary — has painted itself into a corner with its quantitative-easing program, which has only perpetuated the economic malaise from the Great Recession.