Fed Tapering Is Tightening: The Whole World Has Just Suffered A Credit Shock, Long-Term Borrowing Rates Are Much Higher Across The World, Even As The Global Economy Weakens And The IMF Downgrades Its Forecasts. Is QE4 Coming?
July 19th, 2013
The taper talk was borne out of fear that the Fed’s massive Treasury purchases are destabilising the Financial system by sucking out all the high-quality collateral, leaving too little for the private sector. The TBAC report to the Fed in May made that clear.
So Bernanke started talking about reducing purchases, and the markets started to come apart at the Seams. So he’s spent the last few weeks furiously denying that he said what he said.
Ben is trapped. Tapering will cause the liquidity bubble to burst. Not tapering will cause possibly terminal problems for the banks.
Can the world cope with a trigger-happy Fed?
After weeks of utter confusion, the result of Fed taper talk is clear enough.
Long-term borrowing rates are much higher across the world regardless whether the underlying economies are in any fit condition to absorb this shock.