by Jeff Carter
This morning world central banks announced they were
By executing QE3, the central bank puts more dollars in the hands of the banks-increasing the supply of dollars. Absent an increase in the demand for dollars, the value, or price, of the dollar must fall. If the broader economy heats up, and the central bank doesn’t do anything to change its course of action, we will get inflation. If the economy begins growing faster than the rate of inflation, it’s not a big deal. No growth with continued QE policy, and we get stagflation. That’s when it hurts.
That’s why you see commodity prices go up. All the world trade is done in US dollars. After the central bank action of QE, it will take more dollars to buy the same amount of commodity. This morning, Gold ($GLD, $GL_F) and Oil ($CL_F) had big moves to the upside after the announcement.
I don’t agree with the Fed policy of quantitative ease because there isn’t really a way to end it. It becomes like heroin to a heroin addict. Start with a little and then you need more and more to get that high.
The only way to end it is to fix fiscal policy. Right now with the loggerheads we have in DC, that’s not happening. Look for more and more variations on QE up until November of 2012.
http://pointsandfigures.com/2011/11/30/qe-is-here-moral-dont-fight-the-fed/
Take away his printing press. We need a constitutional amendment that bars the printing of money except (1) to replace old/damaged which are 75% complete or more and turned in for destruction (2) slight inflation which must be kept in complete lockstep with growth in census population (ie: minimal printing every 10 years).
ReplyDeleteWe need a constitutional amendment that bars us from sending foreign financial aid or investing more than 5% of our GDP (or some other similar metric) into foreign bonds, etc.