This insane focus of the Fed’s options — “tapering” or not, misses the entire point. Most people admit that the whole quantitative easing has failed. True, the unemployment rate has fallen from a peak of 10% in 2010 to 7% today and the Fed’s target it claims is to keep short-term rates a near zero until that falls to 6.5%. But there are many who believe tapering is required as quickly as possible, because they argue it is contributing to an overinflated stock market.
The intense debate over the virtues of quantitative easing is really meaningless. It has failed to accomplish any goals because the Fed does not take direct action. It offset the quantitative easing by creating an excess reserve facility paying 0.25%. Banks have over $2 trillion deposited there risk free. So while the Fed “bought” bonds to lower long-term rates, it then replaced that avenue with a boulevard allowing banks to sell their junk bonds to the Fed and then park the cash on which they then paid them interest. The idea this would “stimulate” the economy has proven to be false because the banks failed to lend the money out.
Lower the interest rate the Fed pays banks is the ONLY real stimulus. If the Fed eliminated the interest rate it pays banks of 0.25%, then you would see stimulation. Everything the Fed has done to this day has failed to produce inflation and the stock market rise is simply capital trying to earn a living. This is still no speculative bubble.
