The taper is off

I spent much of the last week toying with the idea that the taper might be back on at the end of this month. I was starting to build a plan to short the market, figuring I’d spotted something everyone else had missed.

Sadly this turned out to be nothing more than vanity!

After the “deal” that was reached last Wednesday to extend the debt ceiling (again!), I wondered if this might have removed the political uncertainty, which had such a bearing on September’s Bernanke Blink. Looks like I was wrong.

When trying to anticipate anything to do with the Fed over the last few years, the best thing to do has been to wait and see what Jon Hilsenrath has had to say. It is well know that the chief economics correspondent of the Wall Street Journal is Bernanke’s favoured mouthpiece in the free media.

Immediately before the non-taper, Hilsenrath put out a few pieces pointing out that it was far from a sure thing the Fed was going to act. I’m not sure why I didn’t pay attention to this at the time, but I can tell you now that I’m all ears!

Yesterday Hilsenrath participated in this live online discussion about how the Fed might respond to the weaker than expected jobs’ number. This highly watchable broadcast has made me think about some ideas we should introduce here at SpreadBet Magazine, but more on these another day. In the meantime the message was clear as day. There will be no taper in October and almost certainly no taper in December.

Apparently the outlook has deteriorated sufficiently, thanks to the government shutdown and disruption in data releases, to give the Fed enough cause for concern that they will continue the latest bond purchasing programme.

Ignoring for the moment that this contradicts all the chatter about “recovery” the more serious question is will the Fed ever have the courage to act?

The monetisation of US Federal deficit spending is surely taking us on a path to disaster. I am going to write about the threat this poses to us all in this month’s magazine, but it doesn’t take a genius to figure out that politicians being given free rein to spend as much as they please, without having to pay the bill, is not likely to end well.

And this is now exactly what is happening in America. So the taper is off, the Federal Reserve will keep on buying Federal debt and stocks will keep making all time highs.

That is until the whole rotten system comes crashing down, of course.