I still think a new QE is coming. Roughly eighteen months ago, I threw out a dark horse candidate and mentioned the idea of a Fed funded tax cut. The psychopaths in DC are hammering out a new budget that has a lot of whiz bang tax pieces to it. Those will probably go nowhere. The uproar over taxing college 529s has caused the administration to pull it off the table, and I doubt corporate America will let Obama and company tax their offshore cash. Tax revenue will not be coming DC's way. The stagnation we're in has not boosted employment and wages that much. The bubble recovery has inflated assets, yet I do not see asset based taxes in proposals. A new QE can arrive as long as their is a deficit to finance. QE needs the jokers in Washington to create a bigger deficit.
Because of legal limits on the number of Treasuries the FED can buy, they need a bigger deficit to legally buy USTs out there that fill their QE monthly allotment. The money printing forever trick gets dicey, and holders of USTs or important components of the USD system get nervous if they cannot buy stuff, real stuff, with their dollars. This was the crisis of the '70s after the Nixon Gold Shock up to the Volker rate hike. The groundwork is laid though for a new QE, and one that would help Main Street. The Democrats are trying to help the middle class, at least paying some lip service to it, and the right always loves tax cuts. Say we get boosted spending and some minor tweaks to the tax rates that create a deficit. The FED can announce QE as a means to fund the tax cut. I thought this was coming many months ago because it is in Bernanke's playbook for defeating deflation.
How can it be a safe play now? A lot of things are lining up well for the FED to safely announce this. First of all, the dollar has risen to levels not seen in a decade. This is killing the multinationals that were earning more dollars with their overseas sales. The USDX is sitting above 90. The Yen and Euro both look to be in a mess. Commodity currencies have taken a beating. Oil has tanked so the all important gallon of gas measure is around $2.00. Gold is around $1250 an ounce, so a jump of 20-25% would have it sitting well below all time highs but still ticking up in that conspiracy theory looking orderly increase. With gas down, the words disinflation, deflation and negative inflation are being throw around and people visibly see the reminder. This will get public approval for that FED tool to fight deflation, "moar QE".
A new QE will goose markets. The markets, and academia-political-financial nexus point Larry Summers, disapprove of Yellen's approach. By now, Americans must be aware that the consumer confidence index oddly corresponds to the financial markets rather than the unemployment rate like decades of old. We didn't change, just the economy's focus. The other big thing a QE solved is how will the Wall Street mavens and banks clean up all their bad shale gas play lending. The Greenspan 2000 bubble cleaned up bad dot-com debt. The Bernanke bubble cleaned up bad housing debt. Some credit expansion is needed to clean this shale gas play sham.
The groundwork is out there and conditions are lining up in a new QE's favor. No way will the left want to see a contraction of the economy going into the 2016 presidential cycle. This can be marketed as a QE for Main Street, but it will still be to the advantage of early credit receivers. Where oh where will those early receivers in the new credit expansion place their fiat? We did tech, housing, social media, education, but where is that next bubble? Is it the last bubble? Hard to call that since many commentators have been calling for the Wile Coyote moment from our banks any day. It's not going to happen though. No one inside this system is going to throw the brakes. We'll need an external actor. Dancing to their tune might involve consequences a lot more close to home, personal and worse than supporting regime overthrows in random Muslim nations.