Oh there is a huge difference between EU & Japan policy to that of U.S. EU just had their new currency for about 7 years now, they will do anything to fight off inflation and protect the value of their Euros (they are smart). Funny thing is that if you price Oil in Euros, the price of oil actually went down for Europeans. So they don't feel our pain lol sorry, cough, cough.. Japan has had near Zero interest policy for almost two decades now. So Japan is a country constantly understimulation and there is basically no other monetary policy. the $300 crude is hypothetical and i suppose the price is in dollars. Maybe in yen terms it is only about 10000 Yen or so since dollar sure will crash in that kind of scenario. To some extent in Europe and especailly in Japan the economy is powered by tangible and real production, so it is quite difficult for their economy to collapse as the U.S. economy will. The whole cliche argument that U.S. largest consumer in the world, without U.S. super consumer all you producers are dead is actually a fallacy. The world would actually do just as well without this huge U.S. consumer babe getting free ride in the world...
LOL; it went off topic. China has been a exciting growth story for last 20 years; people had been wrong about it before, cause this has never been done in the west. My point is that China may not surfer as Japanese did in the 90s; if US heading into recession. Therefore; Inflation will be a bigger problem than deflation.
On EU money supply management & bank crisis: http://www.spiegel.de/international/business/0,1518,536635,00.html On stagflation merely being a transition from inflation -> (deflation): http://www.minyanville.com/articles/crude-stagflation-deflation/index/a/16005 http://www.minyanville.com/articles/index.php?a=15995 I can't state these ideas any more eloquently.
Also ... I'll do you a favor and inform you. 1) Here is crude's relationship to the euro. It has gone up. 2) Japan's zero interest rate policy is an attempt at fiscal STIMULATION, not understimulation. I'm sure thats what you meant. And it has not really gotten them out of their deflationary spiral. Proof that interest rates can't fix everything. 3) You need to seriously research your assumption, that we don't produce anything in the US relative to EU or Japan. Its a flawed 'pop' assumption. Hell, we produce a ton of Japanese autos here in the states. Do your due diligence and you'll see that you're assumption is very incorrect. Come to us with detailed results with supporting data and links and I'll be glad to be educated. 4) About China not needing our consumer -- again I have news for you. Research Chinese exports. Biggest trade partners are US and EU (EU is actually bigger at the moment). Research Chinese consumption. Research their dependence on exports. What happens if their exports fall by 10-20%? Remember, in economics, marginal changes have gigantic impacts. OK, thats enough for today.
I take the oil price in euro is dropping back that was my bad. I meant that Japan was Under Stimulation (i.e. japan is being stimulated) for the whole 2 decades of near zero interest policy. I don't have exact figures and i probably won't de any research into this (i'm not getting payed) but let's face it, the U.S. is no longer a production powerhouse of the world. GM is near insolvency, and Toyota sales is breaking records. Those Jap autos are produced here in the states to appeal to us that those Jap autos are also made in america so as to reduce protectionist sentiment. Let's say China or Japan lose U.S. as trade partner. The export related U.S. dollar inflow into China will stop. China will stop buying U.S. treasuries (it is the largest buyer). U.S. interest rate would go up since china and japan no longer financing it. U.S. treasuries and dollar will go down also. This increases purchasing power of Chinese while decreasing teh purchasing power of us Americans. It mades average Chinese more wealthy and capable of buying american goods. It mades average american poorer so they can't buy as much Chinese goods. Eventually equilibrium will be reached when Americans are again producing goods instead of being the consumer of the world.
You're right - obviously we could do a lot better in the states. Take a look at the TICs reports though. Recent Chinese treasury demand has not been very much ... Not in the face of some of the most bullish market moves we've recently seen. I don't think they have as big of an impact on yields as you assume. Chinese have too much export capacity to afford idling. If we stop buying, they lose money with their plants. They have nothing to then buy. Everything is coupled. When Walmart releases a report saying we are buying 10% less, that is your signal that the commodity bull is done, and then you are ready for the final bond bull. (30 year to 1.5% yay!!!)
Deflation is the contraction of money supply. Inflation is the expansion of money supply. Look at gnome's posts on the money supply. It is clear that the Fed is pumping out a lot of money. And we are not even officially in a recession. The Treasury is obviously in favor of a weak dollar, which is inflationary. The Chinese phenomena of exporting cheap goods is fading, as that country is being swamped by high inflation and increasing labor costs and lack of ample commodity supply. Import goods prices are going to increase at a rapid rate due to Chinese inflation. China is not going back to the Stone Age. The genie is out of the bottle. The Chinese want to drive cars, they want to eat meat, they want to live in nice houses. They want to make money. Their domestic economy is growing fast enough to support high domestic growth despite a worldwide recession. In a world where dollar money supply is growing at double digit percentages annually and commodity supply growth is near zero, and commodity demand is rising, how can there not be high inflation? The basic building blocks for all goods are commodities. An ever increasing supply of money chasing a stable supply of commodities will result in inflation. This is common sense.
Excellent Commentary All .................................................................................. The world has dramatic inefficiencies with regards to money itself...It seems so inefficient to have so many currencies throughout the world...that are heavily involved with playing currency positions to remain competitive with peers... The most efficient form of money would be electronic credits....There would be one world wide currency.... There would be no reason to have a Federal Reserve...and no reason to manufacture or dilute money in circulation... Also...to make things even simpler ...there would be no income tax anywhere...There would only be consumption taxes....No individual or corporate taxes... Interest rates would be set such that savings could be adequately rewarded for those that contribute and get ahead.... Why should a Chinaman get paid a $1...and someone else get paid $30 for the same work ? ..................................................................................... To bring about further efficiency.....What do banks do anyway? Small businesses which have provided the US with its dynamic economy would operate even more efficiently if they could operate under stock based cash pools....If you now have large bank stocks....small business pools would be even better... It would be an ongoing mass of small businesses that would be financed by nonobligatory stock.... Furthermore...people that devote their lives to companies...deserve some of the stock for themselves and their families... It used to be that it was a big deal to get your name on a couple hundred shares of blue chip stock which may cost you a $100...now you get buy it in a nanosecond for 20 cents... Computer credits ...stock credits.....why not ? ............................................................................................. E Commerce E Education E Government E Banking Non oil, non food based energy Non business medicine ....................................................................................... All would make for a brighter ....more productive ...and fairer day....
But M3 is merely one part of the total equation. You forget about velocity. If velocity of money halts (from pullback of credit), then it takes a lot more M3 to keep price at the same level. Thus the justification of fed policy. And as far as money supply is concerned, what do you think about all of the monetary destruction that has occurred (in house deflation and people walking away from debt/credit) ?? I don't think those M3 #s tell the whole story, nor are necessarily correct. Accounting games can make them look larger than they are. How have 100s of billions of bank losses been accounted for in money supply? What about all of these credit markets seizing up? Nowhere do I see those #s. Its not as if homeowners in foreclosure made out with free houses (they are penniless as well). Challenge what you read - its not necessarily true, and search for the answers. http://www.sparknotes.com/economics/macro/money/section2.rhtml