Comment 87: Never ending QE; FED is the hostage of stock market (September 19, 2013)

Only thing that has risen in proportion to FED's balance sheet is the stock market, but not the real economy. FED is using the rising stock market and the trickledown effect to stimulate the real economy. Unfortunately the trickling down scheme has increasingly lost its efficiency. This does not mean that the stock market and the real economy are totally disconnected. If the stock market stalls, or goes down, we should expect a sharp slowdown of the real economy. Only the upside stimulus effect is lost as the stock market bubbling higher and higher and leaving the real economy behind.

The obvious consequence of this expanding FED balance sheet to the inability to stimulate the real economy through the stock market bubble is that FED cannot stop QE. Any time the talk of tapering QE comes in, the stock market stagnates and the bad effect on the real economy appears, so FED pulls back from any tapering talk. That was exactly what had happened on September 18, 2013.

Any financial bubble requires ever increasing amount of influx money to sustain. Soon FED will find out that the constant amount QE, like QE3, will not be able to lift stock market any more, and will cause the real economy to slow down further. What to do? Expanding QE, stretching as far as the eyes can see. What is the end result of this hostage game? Currently the jury is still out.