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The Fed Chairman spoke and that's selling kicked in but she used.
For the fifth time Ben Bernanke says that though the economy's improving -- sticking with the 85 billion a month -- -- buying program.
But is sorting through his intentionally confusing remarks the markets got word the punch ball was going away -- that all would be left with is a big hangover.
The Dow fell off a cliff after the announcement closed down more than 200 points console not to.
There are winners and there -- losers and we're gonna tell you where you -- -- joining me now suffered economic presser Jeff -- thank you so much for coming on the show.
First there first -- -- as you know.
I watched the whole entire thing in the press conference afterwards my goodness I mean.
It was long and boring but -- debt markets -- -- up and down and they got something out of it.
What each of the whole exchange.
-- take away well.
My overall take is that the Fed is saying that -- see the economy is gradually improving.
And the markets data and market forecasts and all latter saying the same thing.
So that means it's getting harder and harder for the markets convince themselves that these low rates are gonna last forever.
And everybody is known for a long time they can't quite last forever but if that's.
You know date when it's gonna happen is two years or three years away somehow you can somehow -- just ignore it.
Now it's looking like maybe it's a year away maybe it's even last.
And when that happens they're going to be huge adjustments in the values of financial assets are going to be winners and losers.
So I think that's what got the market's -- that the second half of today.
I mean it definitely is an all he how he manages the dismount and so far almost no one is confident the back and you got smoothly he didn't say.
That they were very much holding out the unemployment threshold of six point 5% that they -- gonna do anything before that happened.
He thinks it's gonna happen some time in 2014.
Well on terms of the forecasts of when not unemployment rates gonna hit that six point 5% threshold.
That doesn't seem overly optimistic that seems perfectly plausible I think what's optimistic -- believing that there's a way to.
Undo what the Fed has done that doesn't generate huge dislocations.
We just have a fed balance sheet that's completely out of whack.
Relative to the rest of the economy when they sell if they do sell all those treasury bonds all those Margaret.
Backed securities that X.
Sure you've got to live I'm sure what you heard that what you said was we can just simply hold those securities to maturity there's nothing that says that we have to sell them don't worry we've got -- under control.
As eight professor of economics does that work if they just hold them to maturity.
That means that the changes the effects on interest rates are going to be very slow and very gradual.
And that might help.
But keep the market seems to be dependent now on not only them not selling off what they are -- -- -- their balance sheet but continuing to buy more -- five billion per month.
And that really can't go on forever so I think it's trickier than the chairman you know made it out to -- -- -- -- Actually OK let's get to the winners and -- because we promised our viewers we were gonna do this.
Good news for the US treasury and for banks how come.
Well what is happening the Fed is buying assets that the treasury is selling -- -- assets that.
Banks sometimes want to buy so by beating up those I've been buying those assets -- -- up the prices it raises the value.
Of those on the balance sheets.
-- banks other financial institutions it keeps interest rates low in the treasury can roll over its debt.
For now -- relatively low rates so yeah good news for all of for those.
-- for now of course when rates go up I mean the government has a real problem because they are borrowing money from themselves at a very cheap rates about it that's going to be tough exactly -- Exactly and and we have a bigger and bigger debt.
Mean despite the fact that interest costs are not contributing a huge amount of the dead yet we still have a big daddy gets bigger through every single -- when interest rates co -- There's going to be a big increase in interest costs of deficits will go up even faster.
The big losers are sabers of course because interest rates or -- get no reward for saving your money which is really too bad because one of reasons why we got into this whole mess in the first place is because everybody is bye bye -- leverage leverage and not saving.
The other big loser is the US economy how come.
While I think the US economy is likely to be a loser because I think that the more we keep doing the Q we whatever.
There -- bigger the adjustment and the harder will beat to get back to normal so I think that we should probably have stopped it sooner probably much much sooner.
And so the longer we keep doing it I think it raises the risks I think it makes a magnitude the adjustments even harder I think.
In another way of saying I think the size of the bubble that we probably have in bond prices just keeps going up and up.
Professor -- and that's why things maybe aren't gonna lose the you are so clear -- he makes so much sense I hope that come back soon.
I'd -- to thank you are right next.
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