Taper terror trauma: Ben Bernanke calls ‘Last orders!’

No, the party isn’t quite over yet, but in the classic British tradition of the “pub’ landlord, Ben Bernanke has effectively called “time” on the fiscal splurge of Quantitative Easing.

Markets jerked upwards and the bond bubble inflated further as news raced through the markets that the Fed had blinked. The taper terror which so rattled markets, especially in the emerging world during August was suddenly set aside as the US Central Bank announced it was going to carry on pouring an eye-popping 85 billion dollars into the economy every month.

However, the uncomfortable truth is out of the bag: sooner or later the Fed will end its “funny money” era. It is rather like the end of a particularly riotous evening in a traditional English Public bar, or “pub” as it is referred to in the vernacular.

From behind the row of beer pumps, barman Ben Bernanke raised his voice the other day and announced it was “Last orders!” The party may not yet be over but Ben has grasped the punch bowl ladle, pouring out a few last measures of vodka to those who weaved their way unsteadily to the front of the queue.

Precisely when the barman will start clearing away the empty glasses and trying to oust the patrons is irrelevant, every drinker knows the party is headed to an inevitable close. Barman Ben may let everybody drink for a few minutes, a half hour, maybe longer but the party is, de facto over. Patrons need to find a new venue to party or go home and try to pre-empt massive hangovers. The next message will mark the death knell: ‘clearing out time’ will begin with barman Ben exhorting his party patrons to “Drink Up Please!” and leave the bar.

Like pub patrons who have drunk a few too many cheap shots, the world’s liquid markets are staggering to the end of the party. The barman may have permitted a little more drinking time but QE [Quantitative Easing] addicts realize the party is over. Hence markets turned volatile with a massive relief rally before the mood turned sanguine as the punchbowl hovers over markets for a final time.

Barman Ben’s Banking alter ego threatened last orders during August and was shocked to find so many investors appeared to take it so hard when he removed the punch bowl of cash, which has fuelled an asset party with the zest of 100% proof vodka.

Despite the Fed blinking the other day, the truth is out. Nobody can afford to run an 85 billion dollar a month bar tab, and therefore markets are going to be jumpy in the near future as the ecstasy of another QE hit or two is tempered by the realization that investors need to be ahead of the game; and the end of funny money Central Banking means the game has changed. In other words, it may be better to leave the pub before everybody else drinks up to avoid the queues at the nightclub next door. Or, it might just be better to go home as this party has already maxed out your credit card and your tab with Barman Ben has just expired.

Having pushed the punchbowl of “funny money” in the faces of greedy bankers for years on end, the economy may still be in intensive care but we won’t know until the drinking stops.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.