My worry is that with all this money creation, the effect it will have on oil. Falling dollar could mean big upside for oil. As we all know high oil prices will kill any meaningful recovery in the economy...
Agreed. However "reserve" currencies have unique expectations and uses. There can come a point where instead of lessening by a little - which is inflationary - it instead becomes unstable - which is deflationary. Or put another way - everybody and their mother sees this move as inflationary. The standard "everybody can't be right" contrarianism rules apply - otherwise we're effectively recycling the age-old rallying cry of "it's different this time!"
it is worse from the 'hard line' real facts and meaning of what they are doing. But that isnt what moves the markets. If you wana play that you have to get a job as a publish of economics textbooks for schools where you can teach people what economic-science says should happen when certain things happen. But when you play the market you have to just accept that the markets are moved 100% on pyschology and sentiment. Its always all about how the big traders who move the market interpret what the fed do that caused which direction the market moves and by how much.. (Read any economics text book and it says the more you cut interest rate the weaker currency gets / higher rates mean stronger currency, but anyone out of uni trying to applying that to the last 1year will have got fleeced out of all their money! lol) Since the more and more money the fed printed, and the lower and weaker they made that money (giving it out for free now 0% interest rate, so losing money due to the price of the paper involved), the stronger dollar got as everyone wanted to jump on the wagon and do 'trend chasing'. (The dollar became like cold beers on a hot day, the more people you saw buying them the more you wanted some for youself too) But then today everyone just decided that they were so bored of so much beers, and that it wasnt even that hot anymore, and so everyone threw there beers away. And so in economic terms what the fed did was very very bad from the ''scientific economic hardline point of view''. But no-one cares about that. And so hat they have done will LOOK very good, since as far as humans are concerned '' the richer things are the better they are''. The more cash you have in your pocket the richer you are. SO when the fed say we are gan make everyone and basically everything rich, and stand on a podium and start throwing out money into a crow everyone celebrates. But so by doing that the fed are making themselves 'god', and are 'creating economy' themselves, so its all artificially built. And think of buidling a house out of wooden blocks, you pull enough blocks out the house will fall..., but provding no-one does pull a block out, and instead keep chopping down more blocks and bring new blocks to make the house bigger and biger, then the house will keep on lasting.
I specialise in trading crude oil mate.. this is causing some confusion for us though, since no-one wants to keep buying oil, since we all know it wont last as oil is 1 of the few things that cant just rise forever like gold/stocks could, as theres the constant 'human aspect' of oil. Since when oil gets over $135 people cant afford to buy much oil, and so cut down. And so smart traders, like me, only want to sell oil when it goes over 135, since why buy something that no-one can really aoffrd to buy off you. So oil wont rise too high, even if the dollar does keep rising. But is very annoying for people liek me who trade oil, as we want to sell it as soon as it gets to the 51/54 level, get it back to the mid 40s, cash i there, buy at the low 40s and hold back up to the mid 40s. But with dollar strength vs human spending weakness it causes problems for trading it.
Quantitative Easing is not immediately inflationary. In fact more important than Fed "creating money supply" are the commercial banks. The commercial banks are in fact the true driver of inflation. They are really the ones which inject the fed new money into the real economy. If the banks just hoard the fed's moeny into reserves, there is no inflation. In fact there is deflation, credit crunch, falling asset prices. Inflation will begin at the precise moment when banks will start lending again. That's what Fed and everybody else is desperately trying to do. The banks unused reserves at this moment are at humongous levels. It is as if you have all your margin unused. Normally the reserves shold be close to 0 (that is banks fully levered up). If all these already huge reserves are used to create new loans, the multiplier effect will kick in (remeber, we're in a fractional reserve system). And the huge amounts of money now hoarded would get into the economy multiplied by about 9. What would that translate into ? INFLATION! That moment will have to be monitored very closely by the Fed, and the new money will have to be sterilized quickly, otherwise it will soon turn to hyperinflation. My opinion is that the Fed will not react quicly enough, and we will have problems with very high inflation rates in the not very far future. That will mean probably a new commodity bubble.
How about monetary inflation coupled with price deflation - if the money's distibuted and then doesn't circulate?
I want to load up on corn and sugar if i can, but my spread betting firm doesnt offer them unless i upgrade my account. (Its free to do but id been more capital) Ive traded corn a few months ago though by buying for longer term, but got fuked on that trade. However now i dont wana buy oil as the human aspect means i want it for day trading only. Gold is too complex, as its merely a manipulation toy, and when the dow gets back to the 8000s, gold may have fallen to the 800s (even with weaker dollar), as theres no way of knwoing how much there will be 'people taking money out of gold and investing longterm in market now the volatility and down crash is over) But corn and sugar are always needed, tied to dollar, and are down nearly 80% since last summer. So they can and will go up, and its extremely ard for you to lose money on that trade.
In normal times, created money goes from Fed -> Banks -> economy Now we have : Fed -> Gov -> economy Fed -> GSE -> consumer -> economy Fed -> Banks -> economy Well... well... well... Inflation will come. It is a question of whether they can control it.