Federal Reserve Chief Janet Yellen continues to back off the monetary peddle as she tapers back the money-printing programs called Quantitative Easing, but asked when interest rates would start to rise after the Federal Reserve finish tapering it, she gave a response that spooked the Fed-dependent stock markets.
Saying rates might rise as soon as six months from the end of the taper, the markets threw a hissy fit a few months back only to have the Federal Reserve again back pedal on Yellen’s comment in order to calm the spoiled child the stock market has become.
Days after she made the interest rate comment and the markets started down, Fed spokesmen everywhere did damage control, taking back the six-month pledge and reiterating instead that rates would stay low for as long as necessary. In other words, don’t worry Wall Street, we have your back and you can continue to buy stocks.
Wall Street instantly responded by doing just that, driving the market once again to new highs and making the wealth of the one percenter’s climb even higher on the totem pole.
Keep in mind that Quantitative Easing, also called “Asset Purchases,” is used to supposedly stimulate the economy by improving credit and liquidity (the amount of cash) in the system and that in turn (it is believed by the Fed) will make it easier for businesses to borrow and expand.
What the Feds apparently fail to understand is that consumer demand drives businesses to expand, not the availability of credit. You can make all the money you want available to borrow but you can’t force businesses to borrow it. Only increased sales will do that and does little to foster organic demand.
What Quantitative Easing does, however, is stimulate the gambling of those receiving it, mainly Wall Street and the banking sector, and these two entities are most of the driving force behind the rise in the stock market. Pull away the Quantitative Easing and the markets will fall, and then the economy shortly thereafter.
It is in light of this fact that I will continue to forecast that the Feds will not be able to finish tapering and if they do finish, new rounds of Quantitative Easing will soon become a reality as the markets start whining in their mother’s ear that more cheap money is required to stimulate the economy.
In reality, however, that new money will end up doing what it’s always been doing — stimulating the balance sheets of Wall Street, banks, favored corporations and the super-rich, who will then drive the stock market even higher while the rest of us wonder when some of that money will make it downhill to the ditch we’re in.
This article expresses the opinions of Marc Cuniberti. He hosts “Money Matters” on KVMR FM 89.5 and 105.1 FM at noon Thursdays and is syndicated on more than 30 radio stations throughout the U.S. His website is www.moneymanagementradio.com