So-Called 'Tapering':Will QE3 Have a Happy Ending? by AL MARTIN (AL MARTIN RAW.COM)
(9-11-13) People have asked me what in the world is "tapering" of Quantitative Easing (QE) and how will it affect the economy?
Fed Head Ben Bernanke told Congress that the Fed may "taper" or ease up the bond-buying program known as Quantitative Easing (QE) in the coming months which will cut bond purchases from $85 billion to $65 billion per month.
But here's the problem and this is why the markets are jittery. With QE 3 the Fed did not announce a fixed terminus date in advance like it did with QE 1 and QE 2.
"Tapering," as the Fed calls it, means a reduction in the amount of both US Treasury instruments and mortgage backed securities that the Fed has been purchasing during the last 14 months as the Good Ship QE has sailed for the third time in an effort to keep long-term interest rates artificially low and pump liquidity into the economy in order to support asset prices.
The Fed made the mistake this time around and it was a calculated risk and it proved to be an error -- not to announce a fixed terminus date for QE 3.