THE
MEANING OF “TAPERING IS NOT TIGHTENING “ in BERNANKE
RECENT STATEMENT.
According to macmillandictionary.com TAPER in finance is a gradual reduction in the amount of new money
which is supplied by a central bank in order to aid economic recovery.
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When Ben Bernanke first floated the
idea of the taper back in May, the notion was that the trigger for the taper
would be falling unemployment.' Guardian 19th September
2013
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Federal Reserve surprises markets by
delaying QE tapering ... The US Federal Reserve surprised markets by
keeping its quantative easing programme running at full throttle, highlighting
the difficulties still facing the global economic recovery.' The Telegraph 20th
September 2013
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On September 18th, at the end of a
closely watched meeting, the Federal Open Market Committee, the Fed's
policy-setting body, chose not to taper.' The Economist 21st September
2013. Source: http://www.macmillandictionary.com/us/buzzword/entries/taper.html
Read this introduction-article:
TAPER
AS BUZZWORD
by Kerry Maxwell, author of Brave New Words
“taper … is a situation where a central bank
gradually reduces the flow of 'new' cash, on the basis that not so much is
needed because it believes the economy is getting back on its feet”
In May 2013, a new sense of an established word took the
financial world by storm. The US Federal Reserve (the country's central banking
system) suggested that an improving economic picture might mean it could scale
back its bond buying and thereby in principle reduce the amount of 'new' money
it was introducing into the banking system. Amid fierce speculation on the
wisdom of doing so, more conventional expressions such as cut back, scale down or reduce were set aside in favour of taper as the preferred term of
reference for such a move.
The financial sense of taper is inextricably linked
to the concept of quantitative easing. The latter describes a
method of pumping extra funds into the banking system by 'creating' money,
something which a nation's central bank has the power to do. The idea is that
this will allow banks to continue lending and get money flowing around the
economy. Taper, then, is a situation where a central bank gradually
reduces the flow of 'new' cash, on the basis that not so much is needed because
it believes the economy is getting back on its feet.
In the event, the cautious optimism
about economic recovery intimated by use of the word taper in the spring
turned out to be short-lived. In mid-September, the word abruptly returned to
the spotlight when in the light of the prevailing economic climate the Federal
Reserve announced that there would in fact be no taper contemplated
until further into the autumn, and possibly not until early 2014 or later.
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BACKGROUND of TAPER
Taper in the financial domain occurs as both a noun and a verb,
with the noun tapering also very common as a description of the
activity. Like the core sense of the verb, the financial sense of taper
can be both transitive or intransitive so that for example we can talk about the
central bank deciding to taper or bond purchases being tapered
by the central bank.
In its core meaning, taper as
a verb means 'to gradually become less or narrower'. Until this recent use in
financial contexts, the only noun senses of taper referred to physical
objects (a thin candle or a long, thin piece of wood used for carrying a
flame). The word is from old English and is what's technically known as a dissimilated
form of the Latin word papyrus (the initial p is changed to t).
Papyrus was used in candle wicks.
This new use of taper is a
further example of the financial domain's penchant for describing relatively
mundane concepts with words which are a little more flowery. Another example
from recent years is use of the adjective toxic to refer to a loan or financial
agreement which has an extremely negative impact on banks or other financial
institutions.
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Here the CENTRAL ARTICLE :
THE TAPER IN PERSPECTIVE (AND
WHAT WE LEARNED TODAY). 12/18/2013
By Tyler Durden – Zero Hedge
And in:
WHAT DID WE LEARN TODAY?
1- We learned that the repeated
pleadings of the TBAC (starting in May and
continuing throughout the year) for
a Taper, did not fall on deaf ears, and the
Fed finally became aware that it is
monetizing US debt at too feverish a pace
resulting in an acute lack of
liquidity in the bond market.
2- We learned that despite the
arrival of the taper, Bernanke will end his tenure
with the lamentable record of having
been the only Fed Chairman never to
have started a tightening cycle
(remember: according to Bernanke “tapering is
not tightening”).
3- We learned that even though the
Fed has taken its first step toward balance
sheet renormalization one year after
launching open-ended QE, it will still
inject $75 billion in “Flow” into
the capital markets, if not the economy, on a
monthly basis, an amount which still
means the Fed will consume about
0.25% of all outstanding and
newly-issued 10 Year equivalents on a weekly
basis (and more if the deficit
declines further). The side effect of that will be
that as Dealers scramble for the
last piece of capital appreciation, even more
capital will be sequestered into the
US capital markets, leading to even more
asset inflation, and even more core
CPI deflation (which eventually will result
in the Untaper).
4- We learned that even the Fed does
not give much credit to the BLS’ definition
of inflation, because while the Fed
has now repeatedly observed that the
unemployment rate is sliding due to
the collapse in the participation rate and
hence labor improvements are simply
a mathematical mirage, its core lament
was the very subpar, and outright
disinflationary CPI readings. Readings,
however, which if taken seriously,
would not have allowed the Fed to taper
right here and right now.
5- We learned that good news will
continue to be bad news, and vice versa, as
the faster the economy relapses into
a sub-2% growth rate (and Obamacare
will promptly help out in that
department in the new year), the faster the Fed
will take a long, hard look at
returning to its baseline $85 billion (or more) per
month liquidity injection. Because
“data dependent” means that the stronger
the data, the faster the Fed’s
crutches go away: crutches that have been
responsible for 100% of the market
upside since March 2009. Or maybe this
time the Fed has actually timed the
economic recovery flawlessly and indeed
a virtuous cycle is emerging. Maybe,
maybe not: ask Jean-Claude Trichet
who hiked rates at the ECB a few
months before the sharpest European crisis
flare up forced Bernanke to once
again bail out the Old World.
6- We learned that over the past
year – based on the pace of security
monetization - the panic at the Fed
regarding the economy has been greater
than during QE1 and QE2 (see chart
below). The minimal reduction to $75
billion in QE per month, or $900
billion per year, shows that the panic is still as
acute and as pressing as ever, even
as the cost of balance sheet expansion
gets larger, even as the Fed now
owns one third of all 10 Year equivalents,
and even as the incremental benefits
of QE to the economy – if any - decline
with every month. The “good” news
(if only for corporate insiders and the 1%):
in the absence of capex spending,
and organic growth, corporate PE multiples
will continue to expand in lockstep
with the Fed’s balance sheet, pushing the
S&P into ever greater, and ever
more unsustainable bubble territory.
7- Perhaps most importantly, we
learned that courtesy of very dovish forward
guidance, the thresholds for further
flow reduction will be very steep, and the
unemployment rate will have to drop
to 6% before QE ends let alone
unleashes the start of a tightening
cycle. Of course with unemployment
benefits ending, the US may have an
unemployment print of 6.5% as soon as
February/March. More importantly, it
means that without a firm flow reduction
schedule, the current monthly
liquidity injection amount will remain unchanged
for a long time, as the last thing
Janet Yellen will want to do as she carefully
settles into her new job will be to
accelerate what is already a tightening
(because, yes, Flow matters, not
Stock, and tapering is tightening) monetary
regime.
8- Finally, we learned what the
difference between $85 billion and $75 billion is
in the grand scheme of things. Or,
in case we haven’t, here is a chart showing
just how “vast” the impact of
today’s announcement will be on the Fed’s
balance sheet at December 31, 2014
when instead of printing well over $5
trillion at its old monetization
pace, the Fed’s balance sheet will be only $4.9
trillion.
See graphic
Source: http://www.zerohedge.com/news/2013-12-18/chart-day-taper-perspective-and-what-we-learned-today OR
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MORE
ON THE ECONOMIC TOPIC “TAPERING” IN:
The
Fed’s tricky messaging: Tapering is not tightening. By Ylan Q. Mui on May 29,
2013
The consensus at the Fed holds that it’s not the rate of
purchases that matters to the economy but the total amount of them. Rosengren’s
comments signal yet another way the Fed could tailor its bond purchases to the
economy and do more with less. Maybe not only is tapering not the same as
tightening, but tapering could eventually lead to more easing.
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News for to Bernanke “tapering is not tightening”
. Recap: Fed Decision to Taper and Bernanke Press
Conference . Wall Street Journal (blog) See also
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Fed Announced To Begin Tapering In January Dec 19-13. By Action Forex IN: http://www.actionforex.com/action-insight/special-reports/fed-announced-to-begin-tapering-in-january-20131219204400/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ActionForexall+%28Action+Forex+%28ALL%29%29 see also:
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Politico-Dec
19, 2013 http://www.politico.com/morningmoney/1213/morningmoney12536.html
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