The New CS Board

[jumanji0881]

We do live in interesting times -
The gap between the haves and have-nots is tremendous
But is the Fed in danger of making things even worse with more QE which would inflated both the stock market bubble and the housing bubble ?


Fed, IMF Sound Warning That More QE Could Lead To "Unintended Consequences" : https://www.zerohedge.com/markets/fed-imf-sound-warnings-more-qe-could-lead-unintended-consequences

Excerpts:
Needless to say, this is all very troubling not in the least because it is obviously expanding what is already the biggest asset bubble of all time: troubling, because while both US and global stocks are currently at all time highs, this has only been made possible thanks to the relentless, record firehose of central bank liquidity that is openly propping up asset prices. Indeed, we have gotten to the point where even established strategists cast aside the lies and admit that liquidity is all the matters, as Hornbach did when he said that "central bank liquidity both greases the wheels of transactional finance and changes the opportunity set available to investors."

Now, central bankers - dumb career academics as some of them may be - are not all idiots, and they clearly understand that what they are doing is merely buying time while in the process making a massive bubble even bigger, so much so that when the next crash comes, it could mean the end of fiat currency and western capitalism as we know it, especially if central banks lose what little credibility they have.

It may also explain why, amid the generally cheerful commentary in today's FOMC Minutes, according to which FOMC "participants saw the ongoing careful consideration of potential next steps for enhancing the Committee's guidance for its asset purchases as appropriate", there were two distinct warnings that the Fed's $120BN in monthly QE could lead to catastrophic consequences.

Of course, the Fed would never use alarmist language like that. Instead what the minutes did say was subdued, but just as alarming, to wit:

Several participants noted the possibility that there may be limits to the amount of additional accommodation that could be provided through increases in the Federal Reserve's asset holdings in light of the low level of longer-term yields, and they expressed concerns that a significant expansion in asset holdings could have unintended consequences.

A few participants expressed concern that maintaining the current pace of agency MBS purchases could contribute to potential valuation pressures in housing markets.

What this means translated into simple English, is that the Fed itself is starting to have doubts that its shotgun approach of stimulating the markets, or rather "the economy" as they call it, may be reaching its limits and that the next major expansion in QE could have "unintended consequences", i.e., a market crash. And just as bad, they also concede that just the current $40BN in MBS purchases could lead to another repeat of the housing bubble of 2006/2007... and its inevitable bursting.

Of course, such warnings come and go; meanwhile what the Fed also said is that for all its concerns, it will most likely continue to pump liquidity, as the central bank is absolutely mortified of another crash - as only then will its lack of tools to sustain financial markets become apparent. As such, the Fed will do everything in its power to not only short circuit the business cycle in perpetuity, but also avoid any market drops... ever again.

And while stocks and bonds have been delighted by this eventuality, surging to record highs as new trillions in QE means just one thing - even higher asset prices, one wonders if we are now on the verge of a Rubicon where, if "several participants" in the FOMC and the head of the IMF are correct, the next QE fails to lift stocks but instead triggers the next crash.