Looks like the Japanese Yen carry-trade will be getting a fresh boost by Japan’s Prime Minister Shinzo Abe. Instead of allowing deflation and defaults happen to get debt levels down to sustainable levels, instead we are going to crank them up to unprecedented levels. In the end this will not work because your debasing your currency and it is a race to the bottom that ends in making a formerly valued currency, valueless. Enter in, a new currency.
Here are a few interesting quotes I wanted to point out:
We think this could be the beginning of a fresh reflation cycle for the global system, combining with the US recovery to mark a turning point in the crisis
It is tremendously important for global growth, and markets are starting to take note
I read the second quote to say, we have to have more credit creation or we will face debt deflation which we want to avoid at all cost. It will not be pretty when the music stops.
The Telegraph – Japan’s incoming leader Shinzo Abe has vowed to ram through full-blown reflation policies to pull his country out of slump and drive down the yen, warning Japan’s central bank not to defy the will of the people.
Governor King is comparing our current financial situation to the 1930′s great depression or worst. I think he is right and this is going to be much worst than the 1930′s because the size of numbers we are talking about and the 24/7 cycle we are on so that financial pain can be transmitted in nano-seconds.
The major problem that we keep coming up against that many smart people don’t get this that the only road to a real recovery that is sustainable has to involve default of debt. You can not use debt to handle a debt problem. Why does the Bank of England think that purchasing Gilts and giving them cash is going to get lending started? It isn’t and most likely, this is not the real reason for this move. I think this is just cover for giving their banks cash so they have more reserves and a more robust “firewall” for the crisis. People just don’t want more debt with their current levels and banks know it is likely going to be worst before we see sunshine.
The Telegraph (James Kirkup) - Sir Mervyn King was speaking after the decision by the Bank’s Monetary Policy Committee to put £75billion of newly created money into the economy in a desperate effort to stave off a new credit crisis and a UK recession. Economists said the Bank’s decision to resume its quantitative easing [QE], or asset purchase programme, showed it was increasingly fearful for the economy, and predicted more such moves ahead.
Here we go again. How many of these failed programs will our dollar have to take until we realize that printing money does not produce real growth. We should see purchases even farther out on the yield curve (10 & 30 year). Commodity prices will begin to raise even more if this happens. We see a constant downplay of the threat of inflation, if we keep this strategy then it will happen. One thing people forget is that bad inflation usually happens very quickly, think of a snowball rolling down a hill.
QE3 may be coming to a central bank near you later this year, according to according to Kansas City Fed President Thomas Hoenig, who said that the Federal Reserve may consider extending its quantitative easing program beyond June 30, 2010 – the current completion date scheduled for QE2 – if U.S. economic data does not meet policymakers expectations in the coming months.
This is more information support a recovery that has lost its steam and the risk of a double-dip recession is increasing from possible to probable. With the survey having a significant number of the respondents expecting more that $600 billion in asset purchase means we are going to see the U.S. currency debauch further. We are facing deflation so they feel this inflation is a good thing until investors sniff out how much money we have in the system and price rise accordingly to adjust for the devaluation of the Dollar.
How long are we going to delay the pain in higher taxes and reduced spending across the board to get our house in order. The more we delay it, the bigger the hole we have to dig ourselves out of. Or the alternative is that we destroy confidence in our currency and all the pensions and savers in the country get the ultimate burn. That means all your mutual funds, retirements accounts and the lot. This is not going to end well.
CNBC - Following Friday’s disappointing jobs report, market participants are now virtually certain that the Federal Reserve will announce that it will resume buying assets at the conclusion of its November meeting and do so in a sizeable way, according to an exclusive CNBC Fed Survey.
Following up on my comments yesterday, it looks like inflation is going to be the route to try and bring a recovery. The Federal Reserve and Ben Bernanke will fail in this attempt because at the end of the day, income (wages) will not keep prices and real growth where it is needed to stop deflation.
The recovery is basically over when we are getting statements like this from our central bank chairman. It can become really dangerous when the Fed create uncertainty by talking about purchasing long term treasuries. The gold market has sniffed this out and the price is almost nears its nominal high of $1,253.00 per ounce.
The more these type of discussions keep coming up, the more it shows that the Fed and Treasury so not have a handle on the macro-economic situation and the market is what is really dictating our conditions. Bernanke said that deflation is not a risk to the economy but he is wrong, to him this is the biggest risk and that is why he is continuing the program of Quantitative Easing (QE aka: money printing).
Ask yourself this question, do you fight inflation with inflation or do you fight deflation with inflation?