http://www.wral.com/markets...f-fed-exit/12572332/

quote Markets are roiled by prospect of Fed exit Financial markets are sliding after the Federal Reserve said it could end its huge bond-buying program by the middle of next year. U.S. stocks fell sharply in early trading and the yield on the 10-year Treasury note rose to the highest point since October 2011. Gold led a rout in commodity prices. The Dow Jones industrial average fell 202 points, or 1.3 percent, to 14,911 in the first 45 minutes of trading Thursday. The Standard & Poor's 500 index was down 21 points, or 1.3 percent, to 1,607. The yield on the 10-year Treasury note climbed to 2.38 percent. Fed Chairman Ben Bernanke said Wednesday the central bank could end its bond purchases next year. Global markets also fell. Germany's benchmark index was down 2.4 percent, France's fell 2.5 percent.

If you thought the Sequester's $85 Billion reduction in planned spending increases for 2013 was bad, wait until the Fed stops pumping an extra $85B per MONTH into the economy. That's just stopping the purchase of bonds - let alone selling the ones it has, which will have the effect of taking money out of the economy.

are you saying they should continue or stop as planned?

quote Originally posted by Pyrthian: are you saying they should continue or stop as planned?

Neither. I didn't express an opinion one way or the other. I commented on what is likely to happen and tried to put it's potential impact in perspective.
Anyone with more than 2 functioning brain cells knew it wouldn't last forever.

Sounds daunting, how does the layperson see it?

85 bil per month.

So divide that by the stock market?

[This message has been edited by 2.5 (edited 06-20-2013).]

quote Originally posted by 2.5: The other question I suppose is there is the 85 bil per month going to go now?

What do you mean? If you're adding 100 gallons of water to a pool every day and one day decide to stop filling the pool, that doesn't mean 100 gallons is going somewhere else. It means you turn off the hose.

quote Originally posted by Formula88: What do you mean? If you're adding 100 gallons of water to a pool every day and one day decide to stop filling the pool, that doesn't mean 100 gallons is going somewhere else. It means you turn off the hose.

I assumed the hose was being filled by our taxes, we know those arent going to go down.

quote Originally posted by 2.5: I assumed the hose was being filled by our taxes, we know those arent going to go down.

No. You're confusing government with the Fed.

The Federal Reserve is a private bank that provides the money to the U.S. Treasury. They have the printing press and print off money to buy bonds with. That means it's newly created money - not from taxes or anything else. The down side is everytime they do that, they increase the number of dollars in circulation, which tends to make each individual dollar worth less. That, in part, is what causes inflation.

Imagine you could just scan a dollar bill into your PC, then print off copies whenever you wanted to buy something. That's what the Fed does.
By printing money and buying bonds, they increase the money supply.
If they later sell those bonds, that takes those dollars back out of the money supply.
That's how the Fed can manipulate interest rates and prices.

The Fed is where money is created and destroyed. Everywhere else between government, people, and business, it's just moved from one account to another.

I would love to ask Ben Bernanke a question. If the Fed printing money is good for the economy, why is counterfeiting illegal? Why not sell special printers and paper, allowing individuals to print all the money they need, and watch the economy explode!

Ah, that Fed.

[This message has been edited by 2.5 (edited 06-21-2013).]

quote Originally posted by Formula88: ... wait until the Fed stops pumping an extra $85B per MONTH into the economy ...

I knew they were doing that but the way you put it, how did they do it ? Who got the money ? The bank's balance sheets ? How did they qualify ?

I have been waiting for this. I never thought well of the practice and it went on too long. I am skeptical of the reason. They say the economy is doing better. I think they realize they did it too much. They created inflation but it has not hit us yet.
So, what's the plan now ? How do they see to get back the fake money from the economy ?

quote Originally posted by cliffw: I knew they were doing that but the way you put it, how did they do it ? Who got the money ? The bank's balance sheets ? How did they qualify ?

It makes some political statements you may or may not agree with, but the explanation of the Fed is pretty good.

quote Originally posted by Formula88: It makes some political statements you may or may not agree with, but the explanation of the Fed is pretty good.

Uhoh! Formula88 has gone all anarchist on you guys! Just playing.

But Ancapchase is a fellow free-market anarchist. I've been friends with him on Facebook for awhile. I believe he also started the Blue Ridge Liberty Project. If only you liked his other videos.

quote Originally posted by NoMoreRicers: Uhoh! Formula88 has gone all anarchist on you guys! Just playing. But Ancapchase is a fellow free-market anarchist. I've been friends with him on Facebook for awhile. I believe he also started the Blue Ridge Liberty Project. If only you liked his other videos.

Settle down, Beavis. Like I said, it goes into politics, but the first half that describes what money is and how it was created and what the Fed does is pretty accurate. You can ignore the conspiracy stuff later on, or just view it as entertainment.

That was a good watch Formula88. Educational and entertaining.
One thing it did not cover was the end game plan of getting all the Quantitative Easing money back out of the economy to prevent inflation.

quote Originally posted by cliffw: That was a good watch Formula88. Educational and entertaining. One thing it did not cover was the end game plan of getting all the Quantitative Easing money back out of the economy to prevent inflation.

It was made before the current QE debacle. I used it just to illustrate how the monetary system and Fed worked.

Often, the buyers of a depressed stock are the company that issued the stock. They institute a stock buyback to try to prevent a cascading effect or to set a higher bottom fair value in contrast to book value. Warren Buffet did it last year or the year before because he thought book value of Berkshire Hathaway was below his fair value target. He paid a premium for about $8 billion worth of his own stock. That premium became the new bottom.
Stock market has been fooled for about 9 months now. No real fundamentals in place for the bull market we've seen other than QE. Cheap $$ available.
Now, treasury yields are up and prices down. Global growth outlook has been re-accessed downward.
$1.8 trillion erased from the global equities (stocks/bonds) markets on Friday.

You can fool the stock market but you can't fool the bond market. Interest rates are going to go up. Going to be interesting to see how they unwind this.

[This message has been edited by maryjane (edited 06-23-2013).]

quote Originally posted by maryjane: You can fool the stock market but you can't fool the bond market. Interest rates are going to go up. Going to be interesting to see how they unwind this.

I don't see how they can. QE is likely trying to cure a heroin addict by giving them more heroin.
Of course, the stock market loves it, but the rising stock prices are not based on rising *values*. There is no real reason for the stocks to be higher priced.

As for bonds, they are in a real pickle. Lower bond prices mean the government can finance debt easier, but nobody wants to keep buying more bonds with such a glut in supply AND such a low return. To get bonds to sell again, interest rates have to go up, but that makes government debt more expensive to service. If there is an exit strategy for this, I have yet to see anyone say what it is.

quote Originally posted by fierobear: I would love to ask Ben Bernanke a question. If the Fed printing money is good for the economy, why is counterfeiting illegal? Why not sell special printers and paper, allowing individuals to print all the money they need, and watch the economy explode!

LOL, ive brought that up numerous times. The government always just prints more money when they get in a bind and its just fine. If I need some more, and I print some of my own, I go to prison. Nice example of double standards. They should have to live just like the rest of us. Make a budget every year and follow it. If you dont have enough in the bank to cover it, you give up something or sell off something to make up the loss. A VERY large part of the budget could be covered by just cancelling all the free vacations for officials including the President. How many good paying jobs could be filled by axeing just all of Obumas vacations. Me and ALL my friends could live very well for the rest of our lives on what just one of his golf outtings cost.