Why You Shouldn't Be Scared of the Fed Taper

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Sept. 13 (Bloomberg) -- On today's "Chart Attack," Cumberland Advisors' David Kotok and Bloomberg's Adam Johnson look at why you shouldn't be scared of the Fed tapering QE. They speak on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Time for chart attack where we show you a chart that will make you smarter.

It is almost here.

It might even be next week.

Our closer is not worried.

You always come ready to play.

I hope so.

We want to talk about the liability side of the fed's balance sheet.

Everybody talks about the assets.

The liability side boils down to two pieces, all of the currencies floating in circulation around the world.

No problem.

That is the piece you're talking about, no problem on the low end.

Cash, it is going to be going.

It is predictable.

You can do all kinds of things.

It is not a problem.

The green section is the excess reserves in the banking system.

When the fed has bought mortgages and treasuries beyond normal policy, they create money and the money winds up back at the fed.

That is what they have to deal with.

It is larger than it has ever been.

It is about 2 trillion.

All of the policies tapering are in advance of reducing that.

For now, it means those excess reserves will grow.

No shock until they stabilize and rolloff.

That is when he gets tough for the fed.

So we have to taper.

When you look at that the big green blob, it is getting bigger.

Exactly right.

The fed understands this.

So they have to do something to stop the growth of the big green blob.

A you come back from 85, 70, 70 $5 billion.

Is that enough?

If you say we are going to look at it next meeting, we are going to go do 60, 65, i think so.

I think the market -- the market is doing well but the economy has a fragile beast.

It has not fully recovered.

Predictability lowered the risk premium in the market.

And that makes markets do better in the economy good.

It is the uncertainty reflected in risk, which creates a problem for the economy.

If i'm hearing you, you would probably give qe a c plus or a b minus.

It has helped markets but not the economy.

First qe, second qe, liquidity had to be injected.

You have a meltdown of well.

You just talked about lehman.

Now it is less and less bang for the buck.

Maybe no bang for the buck.

Time to stop.

Time to roll it over.

Always good having you on the show.

Thank you for being here.

Happy friday the 13th.

We made it.

$1.6 billion, that is how

This text has been automatically generated. It may not be 100% accurate.


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