The Fed has painted itself into an almighty corner with QE, and it looks as though we are finally getting to the point in the process where that fact begins to (a) occur to people and (b) matter.
Bill Fleckenstein has often spoken about the Fed’s reaching the point where it “loses control of the bond market”, and it is quite possible that we are rapidly approaching that point (the signs have certainly been strong in Japan). We may be there already. We won’t know until we can look in the rearview mirror, I’m afraid; but the nonvirtuous circle the Fed has created is extremely clear:
Printing money does not grow the economy. It’s an illusion, as the Fed is now figuring out … Round and round she goes, until you faint.
The simple truth, as you can see from the diagram above, is that the economy and the markets are now 100% dependent on the largesse of the Federal Reserve to sustain them. What you CAN’T see from the diagram is the scary proposition that the Federal Reserve in turn is entirely dependent upon hope to get itself out of this unholy cycle.