"The international community has every reason to feel worried, so the U.S. side owes it a proper explanation for the move,"
Vice Foreign Minister Cui Tiankai from China (HT: My Way News)
They seem to hate us because our Federal Reserve Chairman feels like detonating the US Dollar. Hyperbole aside, what Ben Bernanke has done has announced a program to add $600Bn of liquidity to the US economy through the repurchase of government debt securities. This decision has been taken in order to get more credit out into the economy. It will only fail and ultimately cheapen the value of the US Dollar.
Bernanke described the following conditions that led him to adopt this new round of Quantitative Easing.
In its post-meeting statement, the Fed described the economy as "slow", and said employers remained reluctant to add to payrolls. It said measures of inflation were "somewhat low. Although the committee anticipates a gradual return to higher levels of research utilization in a context of price stability, progress toward its objectives has been disappointingly slow," the Fed said.
(HT:CNBC as linked above)
Professional Investor Axel Merk advised his clientele to get out of USD denominated investments. He also advised his audience as to why China, Japan, The Philippines, Germany, Brazil and a host of other nations devalue America when America devalues the Greenback.
"One of the key things here is a weaker dollar has traditionally not been inflationary because Asian exporters like to absorb the higher cost of doing business," Merk said. There comes a breaking point when Asian exporters can no longer absorb that higher cost of doing business. They'll raise prices and guess what? They will stick. "So we will have a cost-push inflation. We're going to get inflation but not where Bernanke wants to have it. We're not going to get wages to go up. We'll get the price at the gas pump to go up instead."
So Bernanke wants monetary inflation, but it won’t happen because Asian exporters will eat temporary losses in defense of market share. This will cause commodities to become a better store of value than either the USD or the foreign investment markets.
Then, when Jean Valjean is too broke to afford a loaf of bread (or fill up the tank of his Ford Explorer) we’ll all realize that commodity inflation is a really terrible way to force economic growth. Exxon thanks Fed Chairman Bernanke. Those of us who consume gasoline, plastic or anything shipped via diesel-powered conveyance are not quite as ebullient.
The Brazilians chose to speak down-to-Earth, in a language Malcolm X could have understood. Brazilian Finance Minister Guido Mantega briefly tutored the US Fed on basic economics.
“It’s no use throwing dollars out of a helicopter,” Guido Mantega, the finance minister, said on Thursday. “The only result is to devalue the dollar to achieve greater competitiveness on international markets.”
Incoming Brazilian President Ms Rousseff added: “The last time there was a series of competitive devaluations.?.?.?it ended in world war two.” (Obcit FT:Com).
Even DNC Aparatchnik/Journalist Joe Weisenthal viewed the spike in stocks yesterday with concern rather than fanboyism. His surprisingly intelligent take on QE2, The Leviathan, follows below.
A mini taste of Zimbabwe today?...Well, obviously "today" started yesterday at 2:15 PM ET when the Fed announced its quantitative easing initiative….Of course, "risk-on" is codeword for "dump the dollar and buy everything else in sight" so there were huge rallies in Treasuries, precious metals (new highs in gold and silver!) industrial commodities, agricultural commodities, and of course stocks.
- Joe Weisenthal (HT: Business Insider)
Investors are panicked and feel manipulated by Ben Bernanke into dumping dollars and buying stocks that may or may not be intelligent purchases. Bernanke is attempting to shove liquidity into an economy where the people who understand money are continually pulling it out and leaving it on the sidelines because of political and regulatory uncertainty. In other words, Bernanke cannot inflate or improve the level of currency flow by QE2 alone.
He has to convince people who are draining the currency pool to stop taking all the QE money and plowing into precious metals and agricultural commodities. This will not happen in the next two years. Too many people, who are too fond of too many rules and regulations, continue to hold power in Washington DC. Bernanke can throw his money out of the helicopters, but he lacks the authority to make somebody invest it in an increasingly unfree and dishonest American Economy.
Our trading partners sympathize with our unemployment and deflation, but every man is your brother until that time of the month when the rent comes due. China, Brazil and Germany are in no mood to pay any of ours. The continued efforts on our part to devalue the dollar will lead to economic pain for the exporting industries in all of these countries. Commodity-based inflation, in corn, rice and soybeans in particular; will cause many countries around the world to suffer difficulties in feeding their own poor.
The eccentric and never-boring Texan Congressman Ron Paul once more seeks to audit the Fed. Perhaps it’s a shame that he can’t give them a Wonderlic Test instead. Then, perhaps, we could get somebody in charge of that institution that understands why many countries around the world are increasingly beginning to hate us.