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Has the U.S. Stimulus been tapered too fast?

When the Quantitative Easing, the stimulus, the printing of money, what you wish to call it that started under Mr Bernanke at the helm of the Federal Reserve, he introduced the monetary easing and the Assetbacked Securities purchases to bolster the economy over a period of 20 months.

In introducing the Taper( the cutting back of the monetary stimulus) the current Head of the Federal Reserve Dr Janet Yellen, has taken the stimulus away at too quick a pace, too steep a gradient, as she reduced it from $85 billion a month to zero in a matter of 9 months, from January to September (2014).

The healthy jobs numbers and Housing starts and a buoyant Wall Street may have justified the tapering in principle, but perhaps now it is being felt that perhaps the pace should have been a little more cautious. 

To wit, if the Taper had been say to cut $10billion in January, then wait for another $10 billion cut in March, another one in June - i.e. every three months - there would have been sufficient additional cash flow in the economic system to maintain the momentum of growth.  Under that regime of cuts, the Taper would have finished in October 2015.  (Of course, there would have been the additional drawdown of some additional $630 billion in the interweening months.)

I am not criticising Dr Yellen's policy at all, but when she observes the vast gulf between the rich and the poor in America, I feel perhaps a different approach to Tapering may have helped all for a further period.  As it is, an Agreement was reached in the Senate between the Democrats and Republicans in a spirit of co-operation for the national good to extend the Debt Ceiling on an ongoing basis, and this is in place till mid 2016 for the meantime, so that there is no rushing to and fro into the corridors of power in Washington in any sort of weather, especially the colder months, as used to happen previously.
The U.S. economy is well funded with all the necessary cash flow until such time in mid 2016, otherwise Dr Jacob Lew would have said something on this matter.

The Stimulus, which was extraordinary, totalled over $2.5 Trillion over 2 years and 9 months.  It has sustained many jobs, improved and sustained livelihoods, and enabled Americans live with happiness and a growing confidence in the faith of a national wealth that is shared among its citizens, in a nation that is proud of its traditions of providing freedoms and opportunities to all who dwell within her domain.  I applaud Presidents Bush and Obama, Treasury Secretaries Geithner and Lew, and of course Mr Bernanke and Dr Yellen to have given their blessings to the implementation of such policies, which objectively observed have proved a huge success.  I believe without these policies, the worldwide economic Recovery could not have happened.

Now there seems to be enough fat in the system.  All the trading and consumer spending have boosted the fortunes of many companies.  Last I heard Apple had cash reserves of some $140 billion.  In the absence of Stimulus, a lot of the films may not have been made.  As it is today, there is a growing confidence, more films are being produced, on lavish budgets, to satisfy the entertainment needs of people who feel more comfortable. 

If the economic momentum built thus far can propel itself forward - which naturally and normally it should and will - then happier days are yet to come, in the absence of the stimulus. 

Otherwise it seems on the cards that Dr Yellen may have to do an addendum to her policy, and reintroduce some of the Stimulus.  If it proves in the national interest, presumably both the Democrats and the Republicans will agree to support that.

Kind regards,
Durudarshan H Dadlani










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