Despite the warnings, CNBC, CNN and Bloomberg talking heads kept telling viewers it was going to happen and the cuts were going to be somewhere between $10 and $20 billion, citing financial institutions like Goldman Sachs and Barclay’s.

In that desert of ignorance, there was only one financial expert telling the media that the nation’s central bank was not going to taper. For those who cannot believe it, Capital Liberty News posted a recent video titled “Peter Schiff was right – ‘Taper’ edition” that highlighted his comments – his remarks can also be read in this article from Economic Collapse News.

With a strong majority of economics and market professionals forecasting a tapering of Fed stimulus, how did so many get it wrong and so few got it right? Well, ideology for one and understanding the issue at hand is the other reason.

It should be noted that it wasn’t just Schiff promoting the concept that the Fed wouldn’t taper, it was many other libertarian, Austrian economics adherers and central economic planning critics who understood that the central bank couldn’t roll back its inflation-inducing policy because the fundamentals of the economy are unsound.

Right now, it’s costing $85 billion per month to keep the Dow Jones at its current level. Since the economic collapse in 2007 and 2008, markets have relied heavily on the injection of heroin, er, stimulus. It’s akin to what former Reagan budget director David Stockman stated earlier this year: if the Fed were to go fishing for two weeks and close up shop then the markets would collapse because they wouldn’t know where to get its monthly fix.

The United States is in the biggest bond market bubble in its history. Indeed, Fed officials are blind and near-sighted when it comes to forecasting bubbles and long-term economic trends – Fed Chair frontrunner Janet Yellen didn’t think there would be a severe economic downturn prior to the Great Recession.

Here is what Schiff had to opine late last year in a video:

“The Fed’s long-term forecasting, particularly when it comes to seeing a crisis in advance or a bubble, like the stock market bubble or the real estate bubble, is horrible,” stated Schiff. “So if they couldn’t see the stock market bubble and they couldn’t see the real estate bubble, should we be surprised that they can’t see the bond bubble or what’s going to happen when it bursts or what’s going to happen when the dollar collapses.”

Essentially, everything is debt on debt and there is no genuine equity left in the market anymore. This is definitely the greatest bubble ever perpetrated on the American people and everyone seems to have complete apathy, until the day of reckoning occurs that is.

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The market ended up tanking in the second half of that year—dropping 36 percent from the Aug. 25 peak to the October low, before closing out 1987 nearly exactly where it began.

And Marc Faber, publisher of the Gloom, Boom & Doom Report, predicts that the very same thing will happen in the back half of 2013.

“In 1987, we had a very powerful rally, but also earnings were no longer rising substantially, and the market became very overbought,” Faber said on Thursday’s “Futures Now.” “The final rally into Aug. 25 occurred with a diminishing number of stocks hitting 52-week highs. In other words, the new-high list was contracting, and we have several breaks in different stocks.”

Faber says that’s exactly where we find ourselves this August.

“If you look at the last two days,” Faber said, referring to Tuesday and Wednesday, “it’s remarkable. We are close to the all-time high, at 1,709 on the S&P, and yet yesterday and the day before, there were 170 new 52-week lows. That’s a very high figure.”

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Schiff said “A lot of shorts have come into the market. Speculative longs have exited based on three false narratives. One, the US economic recovery is gathering momentum. I think the reverse is true. I think we’re relapsing back into recession.”

Schiff continued, “Number two, a lot of people belief the fed is getting ready to taper off on its quantitative easing. I think it’s the opposite. I think the fed is preparing to increase the monthly size of [quantitative easing].

For his last point, Schiff claims “People think inflation is not a concern,” speculating that it will worsen.

Schiff speculates, “A lot of the gold that was sold on the way down, won’t be available on the way up. I think you’re going to get a huge spike in prices.”

In regards to inflation, Schiff claims that GDP growth is much lower than reported, citing that annualized inflation was reported to be too low, “there is no way inflation is that low. There’s no way growth is high as 1.7,” said Schiff.

Smith said he sees oil rising in the next month. “If we do see any increase in violence in [Bahrain and Yemen], their proximity to Saudi Arabia could spike oil prices higher.”

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Holdings of US Treasuries held at the Fed on behalf of official foreign institutions dropped a record $32.4bn to $2.93tn, eclipsing the prior mark of $24bn in August 2007. It was the third week of outflows in the past four.

Private investors are also dumping fixed income. Bond funds tracked by EPFR Global, a data provider, saw total redemptions of $23.3bn in the week to June 26. US funds were the worst hit, with withdrawals totalling $10.6bn, but emerging market debt funds also saw record redemptions of $5.6bn.

Over the past five weeks emerging market debt and equity fund outflows have totalled $35bn, of which $22.5bn has fled stock market funds.

“People are throwing in the towel,” said Markus Rosgen, chief Asia equity strategist at Citigroup. “It’ll drag the market down lower over the course of the summer.”

Fixed income markets have tumbled since Fed chairman Ben Bernanke first signalled on May 22 that the US central bank would begin reducing its asset purchases later this year. Yields on 10-year US Treasuries have risen sharply since then, hitting 2.52 per cent on Friday compared with 1.62 per cent at the start of May.

The noticeable rise in short-term Treasury yields – in spite of the Fed stressing it is in no hurry to tighten policy – could be the result of developing countries selling Treasury holdings to finance currency interventions.

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Markets were roiled today by a suggestion from U.S. Federal Reserve chairman Ben Bernanke that the central bank may be done with its monetary stimulus next year.

While stocks and commodities took a pounding on the news, the dollar surged.

Now that the U.S. economy has shown signs of improvement, Bernanke said the Fed is considering when it should start normalizing its policy.

In the latest round of its monetary stimulus program – known as quantitative easing, or QE – the Fed has been buying $85 billion worth of financial assets each month to keep long-term interest rates low in the hope of boosting borrowing and spending.

After the Fed’s decision to keep the policy unchanged, Bernanke confirmed that the central bank’s purchases will likely slow down this year and end next year.

When the reduction – so-called tapering – begins will hinge on the U.S. economic data, though.

That prompted some concern among investors who have grown used to the Fed’s active involvement in the financial markets – the Dow tumbled over 200 points Wednesday while oil and gold prices slid- even though the remarks signal a healthier U.S. economic outlook.

Much of the reason why a number of assets, including stocks around the world, have advanced over the past few years is that the money created by central banks through QE has found itself in financial markets.

‘Doubtless the analysis will continue for some time yet and just where markets settle will take some time to establish but this was always an inevitable move,’ said Fawad Razaqzada, market strategist at GFT Markets.

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At a news conference, the central bank chief said if the economy continues to improve the asset-purchasing program could start winding down towards the end of 2013 and wrap up in 2014.

Markets sold off aggressively on the news, with major averages dropping more than 1 percent. The five-year Treasury note hit its highest yield since August 2011 while the benchmark 10-year note breached a 2011 high.

“Stocks and bonds do not like the prospect, which appears somewhat short-sighted given what it means about firming growth and therefore earnings as well as how long the Fed is likely to remain a major player in the interest rate market,” said Andrew Wilkinson, chief economic strategist at Miller Tabak.

“Bernanke explicitly reaffirmed that its bond-buying process should continue to exert downside pressure to bond yields thus supporting the economic recovery,” he added.

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“The problem you have reforming Medicare is that for every dollar Americans pay into the system, they’re going to get three dollars out in benefits. Americans don’t understand that,” Obama said, citing a study from the Urban Institute.

“You’re right about Medicare. We’ve been quoting that exact same study,” Senator Ron Johnson responded, according to attendees. “We’re pretty small little voices compared to your platform. It would be enormously helpful if you use that bully pulpit and start telling the American people the truth.”

Three months later, Johnson and his fellow Senate Republicans are working with top White House officials to define how big the entitlement problem really is. Their proposal is to agree on the size of the problem before tackling the reforms that would solve it.

White House chief of staff Dennis McDonough, congressional liaison Rob Nabors, and other Obama officials came into the initial meetings on the Hill reiterating the president’s position that $4 trillion in deficit reduction would basically solve the problem for now.

But according to GOP deficit projections subsequently prepared by Johnson and obtained by National Review Online, the true size of the problem is staggering, and surprised even many of the seasoned budget negotiators involved.

$4 trillion? Try $106 trillion, the medium estimate. That’s $106,954,000,000,000. Even the lowest, extremely conservative estimate comes in at $72 trillion; the highest is over $120 trillion.
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The Institute for Supply Management’s factory index fell to 49, the lowest reading since June 2009, from the prior month’s 50.7, the Tempe, Arizona-based group’s report showed today. Fifty is the dividing line between growth and contraction. The median forecast of 81 economists surveyed by Bloomberg was 51.

Across-the-board federal budget cuts and overseas markets that are struggling to rebound will probably continue to curb manufacturing, which accounts for about 12 percent of the economy. At the same time, demand for automobiles, gains in residential construction and lean inventories may spark a pickup in orders and production in the second half of the year.

“Manufacturing is really stymied by slow corporate spending and government spending cutbacks,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who was the only analyst in the Bloomberg survey to correctly project the drop in the index. “Manufacturing will grow at a modest pace this year” although it “is unlikely to accelerate in coming months,” LeBas said. “This is part of the slower expansion we’ll have in the second quarter.”

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When compared to its peers, the dollar has drifted to a 15-year low, according to the International Monetary Fund, indicating that more countries are willing to use other currencies to do business.

While the American currency still reigns supreme — it constitutes $3.72 trillion, or 62 percent, of the $6 trillion in allocated foreign exchange holdings by the world’s central banks — the Japanese yen, Swiss franc and what the IMF classifies as “other currencies” such as the Chinese yuan are gaining.

“Generally speaking, it is not believed by the vast majority that the American dollar will be overthrown,” Dick Bove, vice president of equity research at Rafferty Capital Markets, said in a note. “But it will be, and this defrocking may occur in as short a period as five to 10 years.”

Bove uses several metrics to make his point, focusing on the dollar as a percentage of total world money supply.That total has plunged from nearly 90 percent in 1952 to closer to 15 percent now. He also notes that the Chinese yuan, the yen and the euro each have a greater share of that total.

“To the degree that China succeeds in increasing its market share of the world’s currency market, the United States is the loser,” Bove said. “For years, I have been arguing that the move of the Chinese makes perfect sense from their point-of-view but no sense for the Americans.”

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Reducing the Fed’s efforts to keep borrowing rates low would “carry a substantial risk of slowing or ending the economic recovery,” Bernanke said in testimony to the Joint Economic Committee, a panel that includes members of the House and Senate.

Bernanke noted that the economy is growing moderately this year and unemployment has fallen to a four-year low of 7.5 percent. Still, unemployment remains well above levels consistent with healthy economies. And Bernanke said higher taxes and deep federal spending cuts are expected to slow economic growth this year.

His comments about the many risks facing the economy, along with the benefits gained so far from the Fed’s stimulus, suggest the Fed is not ready to taper bond purchases that have helped lower long-term interest rates to encourage more borrowing and spending.

Stocks surged on Bernanke’s comments, although they gave up some gains after Bernanke wouldn’t rule out scaling back the bond purchases by the fall. The Dow Jones industrial average was up 105 points at 11:30 a.m. EDT.

The Fed has said it plans to continue its $85 billion-a-month in Treasury and mortgage bond purchases until the job market improves substantially. And after its April 30-May 1 meeting, the Fed said it could increase or decrease the pace depending on how the job market and inflation fare.

The panel’s chairman, Rep. Kevin Brady, R-Texas, criticized the Fed’s aggressive policies and pressed Bernanke to explain when the Fed might begin to reduce its bond purchases.

Bernanke said the Fed could take a “step down” if the job market shows “real and sustainable progress” over the next few meetings. When Brady asked if that could happen before Labor Day, Bernanke said, “I don’t know, it will depend on the data.”

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