What Will be the Economic Impact of Tapering?

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smaulgld-logoFive years after the 2008 Financial Crisis, the U.S. economy has continued to barely muddle along, despite massive doses of ongoing QE (Quantitative Easing) by the Federal Reserve. Has QE been effective at restoring the nation’s economic health? The verdict ranges from disaster to somewhat effective, depending on whom you speak with. What everybody knows for certain, including The Fed, is that at some point, a healthy economy must stand on its own and that at some point, QE has to stop.

Louis Cammarosano, with the Smaulgld blog, has published a concise summary of the economy since 2008. This article should serve as a primer for those that haven’t kept themselves abreast of all the economic news and debate since the popping of the real estate bubble in 2006 and the collapse of Lehman in 2008.

The Recovery Has Reversed Course, Welcome to the Revocery

Louis outlines the current state of the economy and the failed attempts to fix it. He suggests that “As the economy enters the fall, in a weakened state, it faces major challenges that could bring down an even stronger economy.” He then addresses multiple items that could stop the economy in its tracks:

  • Higher interest Rates
  • War in Syria
  • Oil Prices
  • Millennial Unemployment
  • Crushing Student Loan Debt
  • Inflation
  • Debt Ceiling
  • ObamaCare

We are now treated daily to talk of “tapering,” that is, an end to the Fed’s purchases of Treasury Bonds and Mortgage Backed Securities (MBS). How much, will the Fed scale back? When does tapering begin? What impact will it have on the tepid, if perhaps non-existent, economic recovery? Is taper-talk just talk? Can the Fed truly stop QE or is it boxed into a corner? Perhaps with all the focus on Taper, we have lost site of the forest for the trees?

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