Bernanke's QE Magic Trick: Addendum

On July 26, I wrote a commentary for the Motley Fool in reference to Federal Reseve Chairman Ben Bernanke's U-turn regarding his comments on the tapering of QE. Since then, the August 9, 2013 edition of the Financial Times has come out with a great article entitled Federal Reserve tapering can still underpin US mortgages. 

The author of the article, Stephen Foley, informs the reader that, "Instead of 'taking its foot off the gas pedal', to use Chairman Ben Bernanke's metaphor, the Fed may in fact still be adding extra stimulus - even if it looks at looks and sounds as if it is doing the opposite."

According to Mr. Foley, due to a general economic forecast that refinancing activity already has dropped in half, the Fed's Mortgage Backed Securities purchases are declining to a lesser degree than the MBS market. This means that the overall percentage of mortgages is being purchased by the Federal Reserve will actually be increasing.

 It also should be noted that due to higher IRS tax revenues, and some shrinking of the Federal deficit, there is less demand for U.S. Treasury debt, so here too, the Fed probably will wind up purchasing even a greater percentage of Treasuries.