Monday, 2 December 2013

I just cannot see how the Federal Reserve can in any way taper in a meaningful way. They provide $85 billion a month in artificial demand to the Bond market that is a lot of fire-power. They are keeping yields which are the reverse of the bond price artificially low. If they take away this artificial demand away then bond prices fall and yields head higher.

If you look at the Treasurys bond issuance requirements there is no real austerity, the need to sell more new debt via the bond market will only rise with time as more of the Baby Boomers retire. They are already retiring at the rate of 10,000 per day.

If they taper at all which somehow i doubt, it will be very small and basically symbolic. When the bond market inevitably falls in response,and yields spike higher, QE will be back with a vengeance.

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