No Draper taper for US econ

There’s been much talk of a taper coming from Fed chief Ben Bernanke and his governors, as the central bank attempts to tailor its monetary policy to fit the new normal.

While Bernanke talks of tapering — reducing the $85 billion a month used to buy Treasuries and mortgage paper — the fat cats on Wall Street want nothing to do with slimmer injections of liquidity.

Equities have tapered their enthusiasm with the Dow Jones industrial average down some 5 percent in a quick two-week rout.

The buying we saw Friday was for the May jobs report, with the unemployment rate rising and markets believing the Fed can’t taper if joblessness is rising.

What exactly is the Fed seeing in the economy that it feels it needs to tighten up liquidity now?

Plain and simple, this economy is still weak and clearly unable to stand on its own.

We have not had a single year of gross domestic product growth above 2.4 percent since the crisis ended. In contrast, in the ’30s, during the Great Depression, the US had three years averaging more than 10 percent GDP.

And while the Dow rising has some modest economic benefit if it rises enough and holds, the stock market is still a fickle indicator, except over the long term — like 10 years — as the economic fundamentals ultimately force out the truth.

In fact, if the economy were truly humming along, bond rates wouldn’t need to be anywhere near zero percent.

As JPMorgan CEO Jamie Dimon said last week, as the economy “normalizes, “it will be scary and kind of volatile.”

If the Fed were to jack up rates to 1.5 percent or stop its bond buying tomorrow, rates would still be incredibly low and policy very easy by all historical standards.

However, it would probably push us into a recession almost as deep as the one we were in 2008 (though we can hope it would be without all the bank failures).

So the tailors on Bernanke’s staff had best stop thinking of Don Draper’s suits on “Mad Men,” because the tapered look will not look good on this bloated US economy.