It's time to see how these markets do without training wheels. Because after more than three years, they're about to come off.
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It's true. Come next month, the Federal Reserve likely will stop buying all those Treasury securities and leave nervous traders to essentially fend for themselves. Scary stuff, because the markets have gotten kind of used to this propping them up stuff. What will they do when the Fed's nowhere in sight, and that easy money is nowhere in sight either?
Most suspect a few bumps, but since Federal Reserve Chair Janet Yellen has well prepared them for this day, it needn't be a November to remember. In fact, the central bank has been slowly pulling away the punch bowl for months...buying fewer Treasury notes and bonds each month, as it slowly ends what's been a staggering $1.6 trillion campaign to keep interest rates low and a shaky recovery afloat.
But in ending this third round of bond-buying, or what's become known as QE3, or quantitative easing, the Federal Reserve still risks panicking nervous investors, who still don't think the economy can stand on its own -- at least not without some continued free money Fed help. That easy money has helped allow banks and businesses to borrow at rates darn near zero percent, and look like geniuses investing in anything else, namely stocks ...your bull market, thank you.
And now it's all ending, and not surprisingly the folks benefitting are whining. It seems incredibly ironic that this capitalist bastion that bemoans government intervention on behalf of anyone would shutter at the prospect of losing a far bigger government program on behalf of itself. How many times have you heard Wall Street analysts and bankers rip federal boondoggles benefiting everyone from college graduates saddled with huge loans to beleaguered automakers saddled with huge losses?
By comparison, the trillion-dollar-plus banking stimulus makes all other federal handouts pale. Bankers know that. They just don't say that. No matter, this is the week the Federal Reserve is saying, that's that. You're on your own, the register is closed.
The reality, of course is the register can always reopen, and given the financial industry's disproportionate tug on our economy and purse strings, it can always count on still being too big to fail. That's because despite the new financial law, Dodd-Frank, regulators would be hard-pressed to let another big bank, or even kind of big bank fail. The industry's tentacles throughout our economy are just too wide and deep.
None of this means the government still won't try to nicely part company, and see how its once wayward financial kids fare on their own. They'll certainly give it a go, and likely give some breathless bankers fits. But the hope is in time cooler heads and more independently minded financial players will return.
That's what Mrs. Yellen is betting on -- that after 37 months of someone holding the back of their bikes, this laissez fair crowd might finally be able to make a go of it...on their own.