Posted on 06/03/2013 1:20:25 AM PDT by TexGrill
“The current recovery in the global economic indices is nothing but temporary effects of quantitative easing. If loose monetary policies are stopped, it will inevitably lead to plunging stock prices.” (Song Hongbing, president of the Global Financial Research Institute in China)
“In order to prepare for a worst-case situation that might come in the future, Asian countries such as South Korea, China and Taiwan should join forces. Launching a single currency like the euro is a good way.” (James Rickards, a senior managing director of Tangent Capital Partners, LLC in the U.S.)
At the Dong-A International Finance Forum 2013 hosted jointly by the Dong-A Ilbo and its cable TV network Channel A in Seoul on Friday under the theme “Global Currency Wars and Korea’s Financial Strategy,” the two world-renowned currency experts stressed that South Korea and other emerging economies should pay attention to a crisis that advanced economies’ quantitative easing could cause and draw up strategies to respond to it.
(Excerpt) Read more at english.donga.com ...
China would end up conquering those counties that joined in that scheme without firing a shot.
The loose monetary policy is the correct FED response to high unemployment (23% shadowstats.com).
However, it’s a lot like putting a bandaid on a cancer. We need to protect our market and stop the offshoring of American jobs to low wage countries and communist countries determined to undermine our economy then there’s only so much a loose monetary policy can do.
““In order to prepare for a worst-case situation that might come in the future, Asian countries such as South Korea, China and Taiwan should join forces. Launching a single currency like the euro is a good way.””
I had to stop here, two paragraphs in. Anybody who could suggest South Korea and Taiwan (which is technically at war with China) should turn over their financial policy to China is not well informed on anything. Look what’s happening to the smaller members of the EU. This would grant China control over the most important sector in both tiny countries.
I’ve been thinking of this QE stuff this weekend, particularly after reading some articles here about Japan’s version. I’m trying to come up with a ‘why’ behind this extreme attempt at devaluation.
For a significant time, we’ve been trying to get the Chinese to let their currency properly float. They’ve refused, because it’s part of their plan to draw manufacturing to them with cheap labor / costs. If the yuan came to its proper level, all sorts of jobs would come back here as the cheap Chinese junk (boating pun intended) wouldn’t be (as) cheap any more, just junk.
So: you’re in a room with your fellow free-market (or free-marketish) leaders, and you’re frustrated at the inability to draw the yuan up and let the market do its proper thing. What else can you do? You could ... yep, if the yuan won’t come up, the dollar, yen, etc. can come down instead. Print enough $ and it happens.
Now IMO this is still Big Trouble; it’s using government control to try and force the reaction that would’ve happened in a free currency market, so currency is further removed from being really free. However, it *might* be the thinking of people who aren’t strong capitalists (or are, but realize that a free market requires free nations).
Thoughts?
I don’t think they are intentionally trying to lower the dollar for trade purposes. The FED has a legal mandate codified in law that tells them to maintain full employment first and then a stable dollar.
The reason for the easing is simply that the unemployment rate remains high. Also the credit contraction in 2008 reduced the money supply so much that the initial two rounds of easing barely offset the credit contraction. That’s why we haven’t seen more inflation.
The FED’s legal mandate says nothing about trade only employment. But you don’t need to look further than the employment numbers.
I don’t think they are intentionally trying to lower the dollar for trade purposes. The FED has a legal mandate codified in law that tells them to maintain full employment first and then a stable dollar.
The reason for the easing is simply that the unemployment rate remains high. Also the credit contraction in 2008 reduced the money supply so much that the initial two rounds of easing barely offset the credit contraction. That’s why we haven’t seen more inflation.
The FED’s legal mandate says nothing about trade only employment. But you don’t need to look further than the employment numbers.
Free Trader gloBULLists be damned, the US should have never got into bed with stinkin’ commies.
Methinks a single, world-wide currency has been “the Plan” all along. It allows a global Elite to hold everyone by the short hairs. It will also facilitate redistribution of wealth, which will not benefit US citizens. Local currencies can be problematic, but at least people still retain sovereignty. Taking away currency is a big step toward eliminating sovereignty and freedom.
I reject that premise. The problem has never been a lack of capital, the problem is the lack of viable investments.
Businesses are sitting on giant wads of cash, so how is making cheap loans the answer? They've seen nothing good to invest in. Should they be pushed to invest in bad ideas?
Had the marketplace been left alone, many banks would have gone bankrupt and their bad loans would have been sold off at market rates. The investors in those banks would have lost a fortune (as they should have) and others would have taken over their business at viable buy-in values.
What we have done instead is to place those banks and a few corporations, deemed too big to fail, on long-term life support. They aren't getting better, they are just failing to die. No big surprise that the economy hasn't rebounded.
The government stepped in with QE because the wrong people were going to lose big if they didn't. Those people have been given enough time to reposition (at a profit) before the bottom is allowed to fall out.
It reminds me of prime real estate at a major crossroads that just can't get the proper zoning approval to be commercial. Some average Joe bought it years ago with the foresight that it would become extremely valuable, but without the zoning change its value won't go up. After years of holding the property and being rejected over and over for a zoning change, the property is sold. Within a year it is rezoned and becomes a mulimillion dollar development. Why the sudden zoning change? The right people just didn't own it yet.
Unfortunately, our economy is now being managed the same way, but with the opposite goal. An interstate came through and rerouted traffic away from he crossroads, so the government has closed the Interstate until the right people can sell that expensive property. Once the sale is complete, they will reopen the interstate.
I agree that viable investments are hard to find, given the current policy of not protecting our markets and letting China flood our economy with cheap products.
However, easy monetary policy and lower rates does spur loans. And total commercial loans have grown over the last 4 years. Probably not to the extent the Fed wanted. But again, the FED can't do anything about losing jobs out the back door. Congress needs to change our trade policy and neither party is talking about it.
Romney at least mentioned it during the election. But he was really weak and made it clear that he'd only raise tariffs if China didn't follow the rules. China can follow the rules and still devastate our economy with their cheap labor. There is no rule against China collecting 90% of their GNP in taxes. That effective keeps Chinese consumers poor and prevents them from buying our goods. And it gives the Chinese goverment fund to allow their state run firms to buy our manufacturing capability.
It's okay to let some banks go bankrupt, but you don't want to let it appear that the entire banking system is going under, or it will become a self fulfilling prophecy. Banks had a liquidity crisis in 2008. For the most part the government acted appropriately.
They should have never repealed Glass-Steagall and allowed banks to engage in risky behavior. They should have never lowered the Reserve rate to effectively 1%. They would have been able to deal with a liquidity crisis if they had room to adjust the reserve rate. Instead it took an act of Congress to deal with the liquidity crisis.
Banks do well when the economy does well. And the economy is not going to do well, until we protect our market.
Well, it doesn't hurt, but it is an enticement not a driver. If I tell you that your sales will be down 25% over 5 years, I won't be able to offer you a low enough loan rate to entice you to add capacity, and should you foolishly throw money at the problem, you will have simply lost capital. However, you might jump at a 15% loan if you believe adding capacity could boost your sales 25%.
Making rates too low also diminishes risk, which isn't a good thing. If I get to loan your money out with no risk to me, then I'll do it no matter the risk. The natural result is a huge loss of principal on foolish investments. Monetary easing only works with a capitalist system. What we now have is substantially less than capitalism.
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