Ben Bernanke has spent the better part of his two terms as Federal Reserve chairman trying to demystify the FMOC. Since 2006 Bernanke has said what he's going to do and why, yet either by Bernanke's wicked design, or due to their own stupidity, the markets simply don't understand. In terms of cause and effect Bernanke could just as well have spent seven years talking to his dog on the phone.
Author of the book The Coming Crash and CEO of Euro Pacific Capital Peter Schiff never bought in to the notion that the Fed would reduce Quantitative Easing. In the attached clip Schiff reveals how he knew tapering wasn't going to happen. "Don't listen or pay attention to anything anybody from the Federal Reserve says. What you have to do is look at what they actually do."
Schiff's advice is genius in its simplicity. For a year the Fed has been buying about $40 billion worth of mortgage-backed securities and $45 billion in longer-term Treasuries. That's what Quantitative Easing III is supposed to do. In addition, the Fed has sought to stimulate the economy by keeping the federal funds rate at about 0% since before President Obama took office.
Bernanke's stated goal has always been to use every tool at his disposal to push unemployment below 6.5%, unless or until inflation as measured by PCE rose meaningfully above 2%. Within those guidelines Bernanke has been a monetary terminator. Stimulus is what he does. It's all he does.
The only reason markets freaked out last week was because Bernanke was "deliberately deceptive," according to Schiff. "He wants to maintain a false sense of confidence that the recovery that the Fed has helped to create is real. It's not. It's phoney. It's only here as long as we get ever increasing amounts of QE to keep it pumped up."
Whether or not the recovery would collapse without stimulus is a debatable but ultimately moot point. If you follow Schiff's advice and simply watch what the Fed is doing, there's no reason to believe the Fed is going to do anything other than keep the QE purchases going. According to Schiff, everything else is just noise.
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