They knew that continuing central bank support to fight what is a growing global deflation would have to be an open-ended commitment.
The Fed already dropped the ball so to speak a couple months ago when they started talking about "tapering." They saw what that did to markets. It hit markets hard which confirmed, despite what the bullish shills would have you believe, that markets are being sustained in this new "bubblicious" economy, not only in equities and commodities, by constant injections of Monetary Pabulum into the Hopium Cloud.
So is Faber correct in saying that the Fed could increase its monthly asset purchases? He’s not saying anything that the Fed itself has not said, i.e. if the global economic situation were to deteriorate in 2014, they would be prepared to increase asset purchases.
The deterioration would be evident in sluggish and outright decline in GDP. The chances of the Fed meeting its so-called “targets” -- now that it's issuing "future guidelines" which it never did until about six months ago or so -- is frankly zero to none. But the idea of the US having a 2-1/2% GDP in 2014 is going to require that the Good Ship QE 3 stay out to sea indefinitely.
The vulnerability of markets was seen when the fed didn't do anything but only talked about reducing asset purchases. They didn't actually do it; they just talked about it. There were repercussions of that in the markets, not only equities and commodities, but real estate as well. That's why they back-pedaled.
Meanwhile the government shutdown, the continuing budget resolution problems, the deficit problem, and the debt ceiling limit problem was convenient for the Fed because it gave them an excuse to delay tapering which is what the Fed governors are tripping all over themselves to now say -- that now no tapering is likely until Q1 of 2014 and even that is meaningless, since it depends on what the GDP is doing in Q1 of 2014, which is likely to be lower than it is now.
What the Fed wants is a return to "normalcy" and a return to the long-term growth rate in the United States which has been a 2-1/2% rate in GDP for decades. However this is not possible unless you provide those injections of monetary stimulus "forever."
Essentially this means "QE Forever." That's not what they’re saying but that's what has to happen because in the past a 2-1/2% GDP rate was maintained by a balance of both monetary and fiscal stimulus. Since all democracies are essentially hamstrung now and can proffer no useful fiscal policy or even a budget, the idea of government helping with fiscal stimulus ain't gonna happen. Therefore the entire load as it were of spurring economic growth falls on the backs of central bankers since they control monetary stimulus.
The global bankers like the IMF and World Bank don't really play into this scenario but remain the backstops they were intended to be. They're no longer lending. The ECB is using the IMF and World Bank as a guarantor or backstop to ECB bonds for instance and that's increasingly how they're going to be used in the future -- no longer as lenders or last resort to third-world nation-states but now lenders of last resort of guarantors of last resort to so-called first-world nation-states as the planet’s economy continues to unravel.
So does any of this engender confidence? Yes, because the Unwashed believe it. Confidence is a strange thing. There is no one definition of confidence and there is no constant of confidence because confidence is the ability to sell something to the Unwashed. As long as you can make the Unwashed believe it, the "confidence" occurs.
The program that exists of this constant shilling on CNBC, Bloomberg and financial media is now more important than ever because it is now more important than ever that the Unwashed believe it. The Unwashed have an easy time believing it because they see equity and commodity prices continuously moving higher – thanks to this "monetary stimulus."
So what are the chances that Faber's prediction of asset purchases is going to go from $85 billion a month even higher? I would think that ultimately it will. Why? Because the global central banks including the ECB, the Bank of Japan, as well as the Fed with its LTRO (Long Term Reserve Operation program) -- despite what the shills say about them being perennially uncoordinated -- are much more coordinated than it would seem to be.
They talk to each other every day because they have to. It isn’t just the public meetings that are scheduled. For global central bank intervention as it is called and for the greatest impact it has to be coordinated. You can't have one central bank without the others acting in the same direction.
There are always differences and factions within the banks themselves but those differences are fading. You can tell that's happening because the global central banks are now all on the same page and obviously any differences have been resolved or faded into the background.
The debt ceiling will become an issue again in January. And the whole kicking the can down the road is becoming a running gag on Comedy Central. This has become a political issue and it will become more of a political issue as time goes by because you can’t allow global economic stresses are causing rising civil unrest in the first-world nation-states. This is a danger to the global economy and governments are going to have to start adopting a much tougher line toward this growing civil unrest.
For the rest of this column by Independent Political, Economic & Market Analyst Al Martin, please click here -- Al Martin Raw
* AL MARTIN, author of "The Conspirators: Secrets of an Iran Contra Insider," is an Independent Political-Economic Analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. He is also currently trading the commodity futures market day and night and has a teleconferencing service to facilitate transactions in the markets. This is a service for independent experienced traders.
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