The Fed Is Not Tapering Because The Economy is Improving


Are You Done Being Stupid Yet? (Taper)

Tapering continued today…. and many people whined given the crap GDP report among other soft figures, most-particularly housing in recent months.

Guys and dolls, it’s simple really — The Fed’s tapering is not about the economy.

It is about the destruction of yield in long-dated, laddered bond portfolios as I have noted for months.

It will continue too, absent an all-on market crash, for the same reason.

The Fed is not tapering because “the economy is improving.”

It is tapering because it has to or the asset base of these firms, which is all tied up in income-producing assets with a duration match against their liabilities, is increasingly toxic and will destroy these firms if it is not halted.

These firms are far more-important to ordinary Americans and thus consumption than even the banks.  They’re insurance companies of various sorts (whether declared as insurance companies or not) — including pension funds and similar.

All the hand-waving is stupid; as I pointed out a long time ago this is a matter of arithmetic and there is nothing The Fed can do to “mitigate” this sort of damage other than stop doing QE.

Go to responses (registration required to post)