Wednesday, February 29, 2012

Quantitative easing will wait

The equity market is selling off at the moment as Fed Chairman Bernanke's comments today seemed to indicate that further quantitative easing(or open market operations to purchase securities) are unlikely in the near term. The market had apparently been expecting some additional stimulus to further support the economy's ongoing sluggish rebound from the dire days of two and three years ago.

The take on this here is that the Fed is saving its ammo in case there is some exogenous event that severely rattles the markets. Why spend their intellectual and economic capital now and be left with empty pockets when the market support is urgently needed?

What are those exogenous events? Does a page of my to-do list pad have enough space to list them all is a better question? The highlights of possible troubling events beyond our borders include: the Iran/Israel equation; the Pakistan question, both internal politics there and the edgy relationship with India; the North Korea wild card, still there despite their commitments today, have they ever been true to their word; the European economic challenge including the inevitable failure of Greece and the stress in other countries and their banking systems that could in the worst case lead to a credit freeze up across Euroland that would definitely have an impact here as well; Syria and the splintering of factions across the Middle East in a way that has the potential, however remote, to make the 1860's Civil War in the U.S. look tame; and last but not least the property bubble and inequality recognition in China as they approach a change in their leadership/dictatorship.

Is that enough? Gee, there was no mention of Venezuela, Nigeria, Argentina, or the bad actor Russia(if there is ever a creative film about Russia today Daniel Craig, hands down, should be chosen to play Putin).

So the Fed will wait to do more. It is probably right to do so. We would want more stimulus now to help chop those unemployment numbers further, and some may want it for political purposes as well, but our global picture is murky and troublesome at best. The Fed Chairman must be wise enough to look beyond our borders.

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