Bloody Shame really, following Japan and GB - Reminds me of a great album - Who's Next?
SEEING THE HANDWRITING ON THE WALL, THE U.S. GOES FOR QUANTITATIVE EASING
China has been the biggest buyer of U.S. Treasury securities due to their large trade surplus with the United States. Now, Chinese officials have made it clear that they will not be buying as many U.S. Treasury bonds, agency bonds, and government securities of other nations, due to the fact that their trade surplus with the rest of the world is falling and their huge foreign exchange reserves have stopped growing rapidly.
Further, the Chinese have been spending more of their money purchasing raw materials as they continue to buy up base metals, oil, and other reserves to stoke their economic machine. Chinese officials have made statements recently that their purchases of bonds will fall as their trade surplus falls.
This is the primary reason that the U.S. yesterday announced the purchase of $300 billion of U.S. Treasury bonds by the Federal Reserve over the next six months. This is Quantitative Easing, or to put it more plainly, printing money. The long term effect is highly inflationary.
We predict that this is only the first of many Quantitative Easing activities, and the U.S. will have to print more money to buy much of the $2 trillion in new bonds that are going to be issued in the coming year. This will have large effects, including:
- A decline in the value of the U.S. dollar. (The decline began yesterday as soon as the announcement was made.)
- Substantial inflationary pressures.
- Long-term upward pressure on the prices of fixed assets, gold, commodities, real estate that produces steady income, stocks that can grow.
- Serious negative effects on the economic future of coming generations of Americans (personally, I blame the U.S. political class for their unmitigated shortsightedness.)
