Salient to Investors:

Caroline Baum writes:

Arvind Krishnamurthy at Northwestern and Annette Vissing-Jorgensen at Berkeley found that Treasury purchases themselves have had limited beneficial spillovers to private borrowers, i.e. the Treasury was able to borrow at lower interest rates but not the rest of us. The researchers found that the purchase of mortgage-backed securities had a bigger impact, so recommend Treasury purchases could be stopped without any untoward effects while purchases of MBS should be the last part to be discontinued.

However, emerging-markets debt and equity markets have gyrated since May, while the 30-year fixed-rate mortgages spiked 1.25 percent. And most economists, including those at the Fed, believe the Fed should get out of the credit business and get back to a Treasuries-only policy.

Jim Bianco at Bianco Research is right when he says the Fed has been perfectly clear about tapering – they have no clue, and we have no clue.

In an econometric model, uncertainty about the future cannot be captured in an equation.

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