The publication of last FOMC minutes hit the markets and led to some rapid movements. Some investors are thinking that the money-print era is closing its end and FED, and may be other Central banks, will become more conservative in near future. But don't worry. There is much and perspective future ahead for the money-print. When this process is once started it is very difficult to be stopped. That is the lesson from the history. When you start using the "pill" of money emission you can not stop it until the hyperinflation burns all your "production" and the economy restarts from zero. Is is simply the law of foolishness. No way out of it - every time you try to reverse it, something happens and stops you from the change.

The same is now. In fact this QE games are not about the economy, and not about the lowering of interest rates. Their main purpose is to finance the US budget deficit. FED is printing money, because it is needed to buy Obama's bonds. And as there is no chance of a serious lowering of the deficit soon, so in one or other way, FED will have to print money to finance this new debt.

With starting the money-print machine, FED also started to discourage the real investors in US bonds. So they are becoming less and less, and this turns FED itself in bigger and bigger investor in government bonds. Once started, there is no stop... :))

So there will be enough QE-s in future. The alternative is to leave the US government to bankrupt.

Also important is not to forget that the FOMC meetings are a theatre show. Members of FOMC know that their discussions will be published, and will affect the markets. So their talking is directed not to address the formal topic of the meeting, but is a talk-show that must affect the public. I.e. this is a verbal tool of influencing the markets and not a real decision making meeting. The real discussion is somewhere out of this room - where you can say the real arguments and analyze them. A prepared to be published discussion is simply a theatre.

So probably FOMC is trying to verbally compensate some of the pro-inflation influence of the QE-s, by creating an expectation that money-supply will be tightened. Sometimes this is useful. But rarely for a long...

Dobri
Jan 5th 2012