Whenever the Federal Reserve wants to tweak the dials of the economy — or pretend that it can — it turns first to its sock puppet at The Wall Street Journal, John Hilsenrath, and “leaks” a rumor of policy change (here). They like to do this late on Fridays when financial markets are about to close, so that market players will have a whole weekend to ponder the Fed’s actions like medieval viziers reading goat entrails.
Last Friday’s puddle of steaming guts was a supposed preview of the Fed’s “exit strategy” from its reckless policy of “quantitative easing” or “money” creation (or “liquidity,” if you like). In other words, they supposedly intend to stop juicing the financial markets with fake wealth, i.e. capital not accumulated from real productive activity, but just fictively created on computer hard drives.
For the past year they have been doing this to the tune of $85 billion a month, “buying” US Treasury bonds and bills and an assortment of miscellaneous securities (mostly trash that can’t be pawned off on anyone else) through their so-called “primary dealer” bank cohorts, the too-big-to-fail usual suspects, who “earn” hefty transaction fees in the process of conveying all these pixels from Point A to Point B.
These interventions are called Permanent Open Market Operations, or PoMo.
The theory all along has been that this $85 billion a month would seep down to Main Street to provoke spending (increasing the “velocity of money) and therefore “jump start” the economy. The theory has proven itself to be complete horseshit,.."
— James Howard Kunster, No Mo’ PoMo, Clusterfuck Nation, May 13 2013