"The only thing that saves us from bureaucracy is its inefficiency."
– Eugene McCarthy
We foolishly find ourselves asking: when will Federal Reserve quantitative easing reach its limit?
Considering the consequent boost to risk appetite that flows from QE, enriching those who hold financial assets while doing little for those holding welding torches and spatulas, we are happy to tell you that the Fed has plenty of room to maneuver the printing presses still.
And if you’re wondering just how much credit they can pump into banks or how much government debt they can buy up in order to keep the Keynesian desperados operating, it’s at least 26% more of total government debt – that would take them to even with the ECB efforts that have to this point “succeeded” in suppressing severe risks:
While the Fed has only taken on assets in proportion to government debt increases of 37%, the ECB has matched about 63% of the increase in government debt.
And it’s likely the Fed won’t be stopping anytime soon. From The Contrary Investor, viaZerohedge.com:
As we’ve written about many a time, credit is the lubricant that makes really any economy move forward. In a generational credit cycle deleveraging environment, which we believe is still the correct macro, if credit contracts in one sector of the economy, that contraction must be offset by another sector continuing to take on leverage at a rate at least equal to the sector contraction in question simply to keep macro economic growth stable. To the point, Government sector credit (debt) expansion has offset household credit contraction in the current economic cycle so far.
The household sector, while there has been some marginal improvement in consumer credit numbers, has been reluctant to leverage back up.
We took the following three charts from kingworldnews.com:
Clearly the current surge in growth and recovery talk may be overstated, if you consider inflation’s impact on GDP (chart 1). And the state of the consumer is still a big question market, if not still a major sore spot. Without the household sector to fall back on, the public sector will likely continue to compensate for households thriftiness. Well, maybe.
There are clouds on the horizon—the Paul-Ryan-Cumulus-Cuttis cloud, for example. If those dastardly Republicans, such as Ryan, are serious about putting our massively bloated government on a diet, it could be very scary for the Keynesians in our midst. But, they should not fear. After all, Ben Bernanke told us recently how he saved the world once; why should we even dream he couldn’t do it again should fiscal stimulus be stymied.
So, stocks traders; don’t be concerned about the fact this is the most tepid economic “recovery” from a major recession we have ever seen. Don’t worry that a one good push will topple the Eurozone into the abyss. Don’t even think about further unrest in China, they have plenty of jail space and eager comrades to beat the bushes to ferret out evil doers.
Be happy. We are sure Apple can hit $1,000 in no time.
Apple Computer Daily 1996-2012: Rocket launch!
Have we seen a similar trajectory before? And did everyone want to buy it and quit their day jobs back then? Yes!
Nasdaq 100 Index Daily 1996-2000:
And in case we forgot how badly that “buy Nasdaq 100 then retire” idea worked out, here is the rest of the story...
Don’t worry. Be happy!
Jack and JR