This is an interesting note from Credit analyst Harley Bassman at Credit Suisse, who argues that Ben Bernanke is guaranteed to “taper” soon (meaning, reduce the pace of the Fed’s monthly bond purchases) and that it has nothing to do with economic reality.
1) The announcement of “taper” has NOTHING to do with the economy, it has everything to do with Mr. Bernanke’s legacy. This was his “irrational exuberance” speech to deflate the asset bubble the FED has so assiduously inflated. By stopping out the over-levered trader’s who were trying to monetise the “Bernanke put”, the FED has mitigated a 1994 or 1998 or 2007 scenario (the last times that gamma vols sunk below 80). Mr. Bernanke does not want a Greenspan redux where a financial calamity occurs soon after his departure and he takes the blame.
2) There is a huge Political component. Mr. Bernanke is the only person who can start the taper process and keep his hands clean. If the job falls to the next FED Chairperson, it will be met with a cacophony of second guessers (think Krugman). By doing the dirty job himself, he provides a clean slate to his successor.
He also argues that there’s an economic stability angle, as the Fed will soon be too much of an owner of US debt.
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