QE …..These Actions Have Consequences

 

Quantitative Easing….. You can call it what ever you want.  We’re printing money. 

PIMCO’S Bill Gross, who runs the world’s largest bond fund, said on Thursday that he does not see the Federal Reserve pulling back from its quantitative easing policies until the U.S. unemployment rate at least drops to 6 percent.

Speaking at the IndexUniverse’s Inside Fixed Income conference in Newport Beach, California, Gross said: “I’m basically saying they are not going to exit.” He added, Fed Chairman Ben “Bernanke has basically said if QE3 doesn’t work, there’s more behind this.”

Last Thursday, the Federal Reserve announced that it would start buying $40 billion in government-backed mortgage debt each month until the job market improves significantly.

This is just one program.  We’re actually printing closer to $80 billion a month.  This amounts to free floating money.  But, where will it go?

Gross added that investors should look to construct portfolios to focus on developing countries, investments with shorter durations with a bias toward ‘real assets’ and inflation-protected securities. He forecast that inflation will tick up between 3 percent and 3.5 percent in the next few years.

In the meantime……

In a letter to Brazil’s foreign minister, Kirk expressed “in strong and clear terms” the U.S. concerns about plans to raise import tariffs on 100 foreign products, warning that they could spark retaliation from trade partners.

Foreign Minister Antonio de Aguiar Patriota replied in a letter on Thursday that the currency effects of U.S. monetary stimulus had forced Brazil to confront “a flood of imported goods at artificially low prices.”

Patriota answered that the U.S. has been one of the main beneficiaries of a stronger Brazilian currency, which hit a 12-year high last year. American exports to Brazil nearly doubled from 2007 to 2011, he said, as Brazil went from the 16th to the eighth biggest market for U.S. goods.

“It would be fairer if those increases took place in an environment not distorted by exchange rate misalignments and blatant government support,” Patriota wrote.

Now, if Brazil can see this, what other countries can see this as well?   Now consider the advice of Gross.  He says invest in developing countries….. like Brazil.  But, Brazil is moving to protect themselves from the cheap dollar.  So the free floating money will go to places like Brazil and then places like Brazil will lock the door so the money won’t flow back to the U.S.  

We’re doing it wrong!!!

We are all in for a world of hurt if the U.S. and Eurozone doesn’t quit with their asinine fiscal policies.  We’re replacing crap debt with crap and worthless money and its flooding the world.  In a capitalist market world things must have an equal ability to fail as well as succeed.  This is how markets and economies correct themselves.  Without such an ability to fail these distortions will have disastrous consequences.   It is a dichotomous unholy marriage of two mutually exclusive thoughts.  It can not possibly succeed.     

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6 Responses to QE …..These Actions Have Consequences

  1. DirkH says:

    While looking for current TARGET2 account I found this report by 2 economists, one German, one American, from June 2012.

    http://www.voxeu.org/article/tragedy-commons-european-central-bank
    Several horror charts, and this quote:
    “Each of these non-standard ECB policies, in isolation, has succeeded in stemming a particular funding crisis. However, with few exceptions, these ECB policies have not been accompanied by structural and fiscal reforms.”

    Nice to have confirmation.

    So much for “austerity”.

    • suyts says:

      Yes, this is something many of us have been stating all along. Just look at all of that capital!

      • DirkH says:

        Well, that’s gone for good as far as the German state is concerned.

      • suyts says:

        Yes, it will never come back. I think there is still time to reverse course for both the U.S. and the countries of Europe, but they have to stop this insanity.

        • DirkH says:

          Basically whenever you stop acting insane things immediately improve… but I don’t see any intention of doing that… Barroso was recently on a sympathy tour through the German media in which he said that he loves democracy, doesn’t want a European superstate, and doesn’t want to force the German bank insurance fund to send money to the Southern nations.

          As he is an experienced liar and ex-Maoist student leader, I would presume that in each of this cases he wants the exact opposite.

          They still have this wet Rahm Emmanuel-dream of not letting this crisis go to waste. When they have formed their superstate, it will be about as defunct as a Mad Max movie.

        • suyts says:

          Yes, these are very scary times. This train wreck is about to get messy.

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