November 5, 2010 SouthAmerica: Yesterday I posted the following information on various web sites including Brazzil magazine and so on... The Federal Reserve it is not just standing around, and Ben Bernanke is taking action and he came out with a new economic and financial model to help boost the US financial markets, and they even gave a cute little name for it "quantitative easing" and the Fed is already on QE2, which...will be followed by QE3, QE4, QE5, QE6, and so on â you can read about the roots behind this concept and new strategy, and see how well this new economic and financial model works at: http://en.wikipedia.org/wiki/Zimbabwean_dollar ***** Today Wall Street showed how much they like QE2 and the Dow Jones went up over 220 points. And Wall Street is going to love even more when the Fed is at QE-25 and the Dow Jones will be up by 600,000 points on that day. Here is an actual example of how this strategy works in practice: "Quantitative Easing" â QE #1: At the time of its introduction in 1980, the Zimbabwean dollar was worth more than the U.S. dollar, with ZWD 1 = USD 1.47. *** "Quantitative Easing" â QE #25: The Zimbabwe dollar was again devalued on 6 September 2007, this time by 92%, to give an official exchange rate of ZW$30,000 to US$1, although the black market exchange rate was estimated to be ZW$600,000 to US$1. ***** When a country does not have a real economy anymore, then you have to resort to some kind of gimmick, and Ben Bernanke is doing his creative job at the Federal Reserve by dreaming up an aggressive "quantitative easing" QE2 (translation printing money or to be more exact just a bookkeeping entry) to give the impression that something has been created from nothing â a real world of illusion and nothing else. This is the only game left in town, and as usual Wall Street will milk this baby dry â some analysts are saying that Ben Bernanke is running out of ideas, but I don't agree with that assessment, since Ben Bernanke has real smart people available to him 24/7...for him to get new ideas for new scams â basically Ben Bernanke can arrange to get together with Bernie Maddoff at any time he wants to meet and to cook out some new ideas for scams - It is my understanding that Bernie Maddoff has a lot of free time these days, and he is available to give advice and new ideas to Ben Bernanke at any time. In a Nutshell: The US economy had a complete meltdown and collapsed in 2008, and since that time the US economy has been on intensive care, the patient still is in a coma, and have been kept alive by massive US government intervention, by major Wall Street bailouts, by fudging the books with accounting shenanigans, and the new economic recovery is based on a lot of wishful thinking, and also on the economy that does not exist anymore including all the pieces of Wall Street that went out of business, the thousands of auto dealerships and automobile plants that closed down - and the Republicans are expecting that all these businesses that are gone are going to start hiring people again to help with the economic recovery here in the United States. .
November 5, 2010 SouthAmerica: If "quantitative easing" QE2 currency policy is a sound financial policy and it is good for the US Federal Reserve and for the US economy, then Henrique Meirelles should follow the lead of Ben Bernanke, and he should announce that Brazil also will adopt this type of policy, but Brazil will start with a modest figure - "Quantitative Easing Brazilian Styleâ and in the first round QE1 in Brazil will be for only US$ 300 billion, and if necessary by March 2011 the Brazilian Central Bank can go for QE2 and for another US$ 700 billion and so forth....basically, the sky is the limit on this type of strategy just like in Zimbabwe. ***** âAção do Fed tem consequências negativas para o Brasil, diz Meirellesâ CRISTINA FIBE - ENVIADA ESPECIAL A CHICAGO Folha de Sao Paulo 04/11/2010 - 21h31 A decisão do Fed (Federal Reserve, o BC dos EUA) de injetar US$ 600 bilhões na economia americana "gera consequências negativas para outros paÃses, e é o caso do Brasil", disse nesta quinta-feira o presidente do Banco Central, Henrique Meirelles, em Chicago. Em palestra a estudantes da Booth School of Business, na Universidade de Chicago, ele afirmou que o "Fed está fazendo o que acha que é certo para os EUA". O Brasil e outros paÃses emergentes fizeram crÃticas ao programa de tÃtulos da dÃvida norte-americana, anunciado na quarta-feira. O presidente Lula classificou de "irresponsabilidade" e mediocridade polÃtica" a ação do Fed. Para o ministro Guido Mantega (Fazenda), "essa polÃtica de jogar dinheiro pelo avião só vai servir pra desvalorizar o câmbio e poderá gerar bolha nos paÃses que estão comprando dólar". Em entrevista, Meirelles não quis comentar o que o governo brasileiro fará para combater as consequências negativas do afrouxamento quantitativo, mas disse que ele "cria excesso de liquidez" para paÃses como o Brasil. "Temos que tomar medidas para resolver essa questão." TRANSIÃÃO Questionado por um aluno brasileiro se a equipe de transição da presidente eleita, Dilma Rousseff, já está discutindo medidas para controlar o câmbio, Meirelles respondeu que o "time foi selecionado nesta semana para processar a transição e não está planejando polÃticas macroeconômicas". à Folha o presidente do Banco Central disse "não estar pensando" se será mantido no Banco Central ou se assumirá um ministério no próximo governo. "Ela [Dilma] tomará todas as decisões, é um processo bem organizado e acredito que as escolhas serão boas." http://www1.folha.uol.com.br/mercad...s-negativas-para-o-brasil-diz-meirelles.shtml .
November 5, 2010 SouthAmerica: This article was just published, and this man is one of the few people who makes sense in America these days regarding economics and financial markets. ***** Volcker: âFed bond plan won't do much to boost economyâ - Former Fed Chairman Volcker says bond buying plan won't do much to boost US economy By: Kelly Olsen, AP Business Writer On Friday November 5, 2010, 2:58 am EDT Associated Press SEOUL, South Korea (AP) -- Former Federal Reserve Chairman Paul Volcker says the U.S. central bank's plan to buy hundreds of billions of dollars in government bonds probably won't do much to boost the economic recovery. The Fed announced Wednesday that it would purchase $600 billion in Treasurys, aiming to lower long-term interest rates in an effort to spur spending and ultimately lower the U.S. unemployment rate, currently at 9.6 percent. The move comes on the heels of previous purchases of $1.7 trillion in mortgage and Treasury bonds. Volcker told a business audience in Seoul that the Fed's bond plan is obviously an attempt to spur the U.S. economy but "is not the kind of action that's likely to change the general picture that I've described as slow and labored recovery over a period of time." The Fed's move has caused worries in South Korea and other emerging markets in Asia. Those governments fear that lower interest rates in the U.S. will further push investors to seek higher returns overseas and that this tide of money will drive up their currencies and destabilize their markets. Volcker served as Fed chief from 1979 until 1987 under presidents Jimmy Carter and Ronald Reagan and is currently chairman of President Barack Obama's Economic Recovery Advisory Board. He also warned that the U.S. won't find its way out of the economic doldrums through over-stimulation. "The thought that you can create a prosperous economy by inflating is an illusion, in my judgment," he told reporters after his speech. "And we should never forget that. I thought we'd learned that lesson and I hope we continue to learn that lesson." The Fed faces a dilemma in balancing the aim of boosting the economy now while avoiding fears of a future jump in inflation due to the monetary stimulus, said Volcker, who as central bank chairman hiked interest rates aggressively to tame inflation. "The influence of this kind of action on longer term interest rates, in particular, is ambiguous because the immediate impact of buying bonds ought to be to drive bond prices up and interest rates down," he said. "But if people get concerned about longer run inflationary impacts, the effects go in the other direction." In theory, the Fed's action is expected to lower interest rates because bond prices and interest rates -- also known as yields -- move in opposite directions. The yield is the fixed amount of annual interest paid to the owner of the bond expressed as a percentage of the bond price, so the extra demand created by the Fed's purchases should push bond prices up and lower the yield. But when investors fear inflation will be higher in the future they demand that bonds pay a higher interest rate to protect their investment from the value-eroding effects of inflation. http://finance.yahoo.com/news/Volck...5.html?x=0&sec=topStories&pos=4&asset=&ccode= .
southamerica, I always appreciate your observations and articles. I don't however believe a comparison of the Zimbabwean dollar and the US dollar is particularly interesting for the following reason. Looking at Zimbabwe, the loss of faith in its currency (and economy) is linked to the massive outflow of outside investments following the apartheid-regime of Mugabe. The US has a real economy with GDP growth (thanks to stimulus, of course). The Federal Reserve together with the Treasury Department and the rest of Washington are basicly trying to juggle the deflation scenario vs hyperinflation, but as many have said before me: Various assets will have varying degrees of inflation/deflation. Housing has deflated, whilst many other goods have inflated in price. The size of QE2 is a sign that the Fed believes deflation is still a real risk, and with the Chinese yuan still kept artificially pegged to the USD the US does not have any other choice than to deflate it's own debt. But, thanks again for your interesting articles which are provocative to some but which I often agree with.
November 5, 2010 SouthAmerica: Reply to JorgeAmado88 Thanks for your nice words. When I compared the US dollar with the Zimbabwean dollar I was being sarcastic. The US dollar is the largest international reserve currency, and that status gives the United States a very special position â the US can get away with murder regarding international monetary policy. If wasn't for that special status, the Bernanke "quantitative easing" QE2 currency policy would be destroying the US dollar in the global currency markets, and interest rates would be skyrocketing here in the United States. If the European Central Bank or the central bank of any country for that matter including Brazil tries to play that game and replicate Ben Bernanke's "quantitative easing" QE2 currency policy â just watch what would happen to the currency of that country in the international market. What Ben Bernanke is doing with QE2 it is just a desperate action to show to the world that he is trying to do something even though the US economy it has reached the end of the line for all practical purposes. .