First of all a quick recap for those who don’t follow these things.
For the past year, The U.S. central bank, Federal Reserve, has been using quantitative easing to help the economy. Quantitive easing basically boils down to the Fed spending a lot of money on assets that banks don’t want, or on government bonds, and by spending I of course mean creating the money out of nowhere.
Now, they are slowly cutting back their spending, this is what people call taper. For the moment, they have gone down from 85 billion down to 65 billion. This, as predicted by Peter Schiff and myself, has led to falling stock prices and got the U.S. back into recession. Actually we never exited the recession, but now that the QE is being taken out, we can feel the pain much more clearly.
You can think of the analogy of a patient on morphine, where the patient is the economy and the QE is the morphine. When you look at it that way, it might seem quite clear that keeping the patient on morphine, while making his present life easier, is going to delay the real recovery.
Anyway, it’s probably taking some time to sink in, but at some point people are gonna realise thing are bad bad bad. The real question is if when we reach that point the Federal Reserve chairwoman Janet Yellen will reverse the taper, continue to and even increase their asset purchases.
If history is any indication, my guess is that she will. Alan Greenspan, Ben Bernanke and now Janet Yellen. The one thing they have in common is that the next one always seems to be more willing to use the printing press than his predecessor.