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Q E 2 Will Have The Reverse Effect Intended

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http://www.telegraph.co.uk/finance/comment/liamhalligan/8068335/Chinas-not-the-villain-if-the-West-tries-to-debase-its-debt-through-QE.html

China's not the villain if the West tries to debase its debt through QE

Last weekend's "currency war summit" ended in dismal failure. Future historians will wince.

By Liam "Irish" Halligan

Published: 9:00PM BST 16 Oct 2010

..../
While policy (currency control) at the global level is non-existent, the US and several other "advanced" nations,
including the UK
, are in the midst of a radical policy experiment that is about to get even more extreme. For most of last week, the dollar fell further on speculation that the Federal Reserve, having already bought $1,700bn (£1,062bn) of dodgy mortgage-backed securities and government bonds with newly-created money, will soon indulge in further "quantitative easing".
As a result, the US currency hit record lows against the Chinese yuan, Swiss franc, Australian dollar and the Japanese yen. And, of course,
that is just what America wants
.
Ben Bernanke, the Federal Reserve chairman, continued to fuel speculation that the US is about to unleash hundreds of billions of dollars more QE money. "There would appear – all else being equal – to be a case for further action," he said in a speech on Friday. Yet America's now blatant policy of trying to print its way out of trouble, a ploy being copied by others, is far from proven and could actually make things worse: QE on the scale now being proposed has never been tried. It is beyond the realms even of economic theory.
If banks in the US and elsewhere remain reluctant to lend, Western economies will stay in the doldrums and could tip back into recession. On top of that, there is a very real danger that renewed money printing drives up the price of oil and other commodities - imposing serious damage on the QE nations, most of whom are importers of such key economic inputs.
Crude is above $80 a barrel. With the price of copper and tin soaring, the London Metal Exchange price index last week hit a two-year high. Commodity prices are strong - and rising
- even though Western demand remains sluggish because of economic weakness. There are, of course, solid reasons why the price of oil, metals and other tangibles should stay firm – not least the on-going rapacious demand among emerging nations in Asia and elsewhere as they industrialise, build more infrastructure and their energy-hungry middle classes continue to grow. On the supply side, too, with the credit crunch having starved the capital-intensive extractive industries of cash in recent years, there are fewer mining and drilling projects about to come on stream.
But something else is going on. International investors, deeply alarmed by the Western world's wildly expansionary monetary policy and the related destruction in the value of paper currency, are starting to park their wealth in assets "that governments can't print more of". The obvious manifestation of this is the price of gold, which hit another record on Thursday. Silver has also just reached a 30-year high, and is set to scale $25 per ounce.
Aside from precious metals, though,
the nightmare scenario is that QE leads to a spike in the price of oil and other commodity imports needed to keep the Western world running - as a result of investors using such assets as an "anti-debasement hedge". There are signs this is starting to happen. If the trend becomes stronger, and speculators pile in via commodity-related price indices and "exchange-traded funds", the result could be a commodity price run-up that shatters the already anaemic Western recovery.

The problem is short term fix thinking. The Brown theory of economics--debt is good and easing today's pain takes priority ovefr long term stability.

I agree that QE2 will have the reverse effect intended. It will bring back the recession with a vengeance and another assett price collapse in its wake. Panic will come back and the flight to safety will cause the $ to spike and end any advantage they currently enjoy by pushing the Euro ever higher.

There is only one way out of this mess and that is to allow deflation to runs its course even if it last a generation . The cycle of boom and bust cannot be ended with more manufactured boom (QE2). The market will always win in the end so it might as well take the deflationarty medicine today because it will be that muchy deeper and longer if they do not.

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Yet America's now blatant policy of trying to print its way out of trouble, a ploy being copied by others, is far from proven and could actually make things worse: QE on the scale now being proposed has never been tried. It is beyond the realms even of economic theory.
I thought that the Weimar Republic and Mugabe had tried printing money to solve their problems. :blink:

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Rock and a hard place.

If they print to bail out the banks they are going to oil this will in turn kick off another recession.

In the current climate this of course will mean more printing to generate a recovery.

We have morons in charge.

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I thought that the Weimar Republic and Mugabe had tried printing money to solve their problems. :blink:

aye but neither was the world reserve currency

i think the US has a few tricks left up its sleeve yet - of course these currency battles may be ultimately won by the countries hoarding holding the biggest hedge wedge

Edited by p.p.

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aye but neither was the world reserve currency

i think the US has a few tricks left up its sleeve yet - of course these currency battles may be ultimately won by the countries hoarding holding the biggest hedge wedge

That's the key issue.

This is not like it's one country with a relatively small proportion of the world economy printing like Zim or Weimar Germany.

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oh dear looks like another bad attempt at stopping the inevitable but all it will be is a mere bump in the path of the huge bolder whitch is gathering pace daily. IT didnt work last time and it wont work this time. Our course is set and has been for a long time.

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oh dear looks like another bad attempt at stopping the inevitable but all it will be is a mere bump in the path of the huge bolder whitch is gathering pace daily. IT didnt work last time and it wont work this time. Our course is set and has been for a long time.

In 2001 it would have been just tech stocks and tech sector (plus knock on effects).

In 2008, banks and the overborrowed (both companies nad individuals).

201? - Pretty much the whole population will suffer.

Not much left to expermient with once they have done that.

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Guest spp

I agree that QE2 will have the reverse effect intended. It will bring back the recession with a vengeance and another assett price collapse in its wake. Panic will come back and the flight to safety will cause the $ to spike and end any advantage they currently enjoy by pushing the Euro ever higher.

There is only one way out of this mess and that is to allow deflation to runs its course even if it last a generation . The cycle of boom and bust cannot be ended with more manufactured boom (QE2). The market will always win in the end so it might as well take the deflationarty medicine today because it will be that muchy deeper and longer if they do not.

:lol:

Gold is now over $1300 incase you hadn't noticed.

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Panic will come back and the flight to safety will cause the $ to spike

you hope.

else you are screwed, aren't you? :lol:

one day that trade won't work. it might be this time. :ph34r:

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aye but neither was the world reserve currency

i think the US has a few tricks left up its sleeve yet - of course these currency battles may be ultimately won by the countries hoarding holding the biggest hedge wedge

And how long do you think the status of reserve currency will last if they start printing money like toilet paper? Would you want to hold toilet paper?

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"anti-debasement hedge"

I like that phrase.

I only see rapid devaluation and my savings being wiped out, the gold market is not an option for me as that looks to be even more bent and volatile than the housing market.

So my choice of a anti-debasement hedge will be laurel on one side and yew on the other so I am buying a small house with a big plot from a forced seller.

If your savings can't keep up with inflation (risk-free) then even overpriced houses start looking attractive.

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  • 244 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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