The FED has crossed the Rubicon

[Mega]

http://www.telegraph.co.uk/finance/c...ore-money.html

Mega's veiw:-
This is the last straw, even the dogs in the street now know the $ is finished.....it (& hopefully the £) are about to slip into HELL.

I Hope
;))
mike

[GRG55]

Re: The FED has crossed the Rubicon

From the article:

"America is now isolated and the rest of the world is furious. The widespread use of capital controls and even a lurch into 1930s-style protectionism are both far more likely than just a few days ago...

...In the aftermath of the Fed's QE2 announcement, rather than agreeing to measures that would ease pressure on the US economy, China gave the States a public tongue-lashing. Measures to cap trade surpluses would "hark back to the days of planned economies", said Cui Tiankai, who will be one of China's lead negotiators in Seoul...

...Germany also waded in, using industrial-strength language to describe the Fed's latest move. "With all due respect, US policy is clueless," remarked the finance minister, Wolfgang Schäuble..."

Now I am no fan of QE, but frankly the "rest of the world" are hypocrites, every last blasted one of them.

How "clueless" was Germany over the years that the ECB deliberately kept interest rates too low on its behalf in order to counter the deflationary effects of reintegrating East Germany at a politically correct, but economically suicidal exchange rate...and thereby knowingly fuelling - with cheap money - the excesses in the peripheral countries that a newly virtuous Germany so loves to harangue today.

How is it that the ECB is allowed to "print money" to manipulate the interest rates of Greek, Irish, Portuguese and Spanish sovereign debt, but Europe, led by Germany, deigns to criticise the Fed for doing the same? This is much like listening to someone rationalize why it is acceptable to cheat on your spouse three or four times, but "immoral" to run the score into the double digits...

And although the BoE's MPC announced last week that it was putting "on hold" further QE, how many hundreds of billions of UK Pounds of QE has it announced in the past 12 months alone...and with Whitehall now hell bent on putting the country through a crash austerity diet, how long will it be before the political heat to offset the contractionary effects of fiscal tightening once again frightens those upstanding citizens of Threadneedle Street?

And finally, China lecturing the USA about "planned economies"...now that's chutzpah!

Hypocrites. The whole lot of them are hypocrites.

Edit added: The Fed could not have possibly crossed the Rubicon, which is in northern Italy. They were busy on Jekyll Island, Georgia, USA, trying to make the case that they "are not in the business of creating inflation".

[mooncliff]

Re: The FED has crossed the Rubicon

I used to think that the tipping point would come first when the dollar tanked and oil went to $150+ and stayed high for months.

Now, however, I think maybe although the above will also happen, the main problem with the dollar dropping from 76 to 40 would be that the US economy will shrink from 20% of world GDP to 10%. That would mean that with a lousy domestic economy with no one spending, a currency worth half what it was, and a total economy now 1/10 of the world's, the US market would suddenly (however long it takes the dollar to crash) become irrelevant. No one would particularly care what the exchange rate was because the US market would be so small, and other countries would direct their energies elsewhere. Thus would come the wholesale dumping of all the petrodollars and trade dollars and all the bonds previously issued; what is being issued now and in the future is paltry compared to that, so the helicopter drops are more significant in the alienation it is producing. I do not think major holders like China will trigger this; I think it will be triggered by thousands of small entities who decide to rebalance their portfolios with fewer dollars and more commodities, especially PMs.

Around ten years ago, I fully expected the US to go into a long imperial decline around 2030. I never expected it to start in 2006. I am afraid this is going to happen at Internet speed, meaning in months rather than decades.


The pound will probably go down with the dollar together... after all, we used to be one country... but look at the bright side: you have better museums.
http://www.bbc.co.uk/ahistoryoftheworld/

[mooncliff]

Re: The FED has crossed the Rubicon

From the article:

"America is now isolated and the rest of the world is furious. The widespread use of capital controls and even a lurch into 1930s-style protectionism are both far more likely than just a few days ago...

...In the aftermath of the Fed's QE2 announcement, rather than agreeing to measures that would ease pressure on the US economy, China gave the States a public tongue-lashing. Measures to cap trade surpluses would "hark back to the days of planned economies", said Cui Tiankai, who will be one of China's lead negotiators in Seoul...

...Germany also waded in, using industrial-strength language to describe the Fed's latest move. "With all due respect, US policy is clueless," remarked the finance minister, Wolfgang Schäuble..."

Now I am no fan of QE, but frankly the "rest of the world" are hypocrites, every last blasted one of them.

How "clueless" was Germany over the years that the ECB deliberately kept interest rates too low on its behalf in order to counter the deflationary effects of reintegrating East Germany at a politically correct, but economically suicidal exchange rate...and thereby knowingly fuelling - with cheap money - the excesses in the peripheral countries that a newly virtuous Germany so loves to harangue today.

How is it that the ECB is allowed to "print money" to manipulate the interest rates of Greek, Irish, Portuguese and Spanish sovereign debt, but Europe, led by Germany, deigns to criticise the Fed for doing the same? This is much like listening to someone rationalize why it is acceptable to cheat on your spouse three or four times, but "immoral" to run the score into the double digits...

And although the BoE's MPC announced last week that it was putting "on hold" further QE, how many hundreds of billions of UK Pounds of QE has it announced in the past 12 months alone...and with Whitehall now hell bent on putting the country through a crash austerity diet, how long will it be before the political heat to offset the contractionary effects of fiscal tightening once again frightens those upstanding citizens of Threadneedle Street?

And finally, China lecturing the USA about "planned economies"...now that's chutzpah!

Hypocrites. The whole lot of them are hypocrites.

Edit added: The Fed could not have possibly crossed the Rubicon, which is in northern Italy. They were busy on Jekyll Island, Georgia, USA, trying to make the case that they "are not in the business of creating inflation".

Wait, you forgot the country that taught the world how to do quantitative easing... for decades... and the carry trade! Or maybe since the yen has appreciated by 40%, that is enough?

[Down Under]

Re: The FED has crossed the Rubicon

This is much like listening to someone rationalize why it is acceptable to cheat on your spouse three or four times, but "immoral" to run the score into the double digits...

Very good; gave me a quiet chuckle.

[Down Under]

Re: The FED has crossed the Rubicon

Hypocrites. The whole lot of them are hypocrites.

I agree, the whole lot of them are hypocrites.

Nonetheless, maybe the ROW is getting tired of living with the U.S. as having an “exorbitant privilege”.

Maybe, it's a bit like someone who puts up with enough shit for long enough but then reaches a breaking point, and says enough's enough.

[GRG55]

Re: The FED has crossed the Rubicon

I agree, the whole lot of them are hypocrites.

Nonetheless, maybe the ROW is getting tired of living with the U.S. as having an “exorbitant privilege”.

Maybe, it's a bit like someone who puts up with enough shit for long enough but then reaches a breaking point, and says enough's enough.

Perhaps. But that is a privilege that has been conferred on the USA by the ROW, as it suited them to do so...and it still does, as long as the USA is willing to maintain massive current account deficits and absorb the output from the ROW [especially now, in a world that is awash with huge amounts of surplus productive capacity]. This is why the ROW continues to support the US Dollar, despite their squawking...and the best efforts of the USA to discourage them from doing so.

China, as one example, could not have achieved its privileged position of massive trade surplus and rapidly accumulating foreign reserves, unless the USA [and to a lesser degree the Eurozone] were willing to run equally gargantuan deficits [and I am sure it has not escaped anyone's attention that Australia benefits significantly from this situation].

That the USA needs to reduce its debt-financed private and public sector consumption rate is obvious. That China loudly lectures the USA to do so, but in the next breath expresses an expectation that it should do so without any reduction in Chinese access to US markets is one of the hypocracies. China expects the USA to somehow unilaterally reduce its current account deficit, but objects to one of the key policy tools that the USA would have to impose in order to realistically achieve that unilateral outcome - taxes and tariffs, and non-tariff barriers, on import trade. The surplus nations have demonstrated they will not cooperate with their principal deficit nation[s] pairings in order to tackle the very real problem of global account imbalances [Germany has proved equally intransigent on this issue within Eurozone trade patterns].

The surplus nations benefit from the status quo, and would like to see the situation somehow continue indefinitely. So determined are they to maintain this circumstance that they "vendor finance" it. Isn't that exactly what China has done with the USA? Isn't that what Germany did for years with the Eurozone peripheral countries? And isn't that exactly why China has recently, and very publicly, announced it shall purchase the sovereign bonds of Greece and Portugal, when practically no one else but the ECB will do so? Don't have the money to buy our stuff? No problem! We'll set you up with an account at Lucky Dragon Loansharking or Helmut's House of Hock, as the case might be. Greece is a "sub-prime" credit risk, and what China is doing is just a global variation of what sub-prime lenders were doing in the dusty outposts of California's Central Valley in 2006.

There is a legitimate argument that consumers & governments in deficit nations aren't forced to borrow from their surplus nation benefactors. That's the same argument that sub-prime "homeowners" weren't forced to borrow from Countrywide and its peers. Fair enough. But this observer finds it hilarious that as soon as the borrowers make noises about reducing their appetite [e.g. the US trying to cut its trade deficit], it's the lenders that seem to whine the loudest. When mortgage borrowers evaporated in the USA the problems it created for the clamouring lenders were TARPed over. Not even the Chinese can manufacture a tarp big enough to cover up the global equivalent. And they know that.

Nobody is lily white in this affair!. But if the USA and the ROW don't find some cooperative accomodation to the deal with the problem of global account imbalances, there will be a trade war. And frankly in ANY global war my bet will, once again, be on the side of the USA.

[Thailandnotes]

Re: The FED has crossed the Rubicon

I know a Thai guy who owns a furniture company. They make high end stuff that sells for big prices in the states. When the downturn came, the company laid off workers, and consolodated a few plants. (The baht has appreciated ten percent against the dollar in less than a year.) For 18 months, things looked bad, but the company is finding new markets for it's stuff, mostly in Asia, and the profits are up. From talking to the owner, I get the sense that he has kind of said to hell with the US. There is inflation in Asia and it's obvious. Marc Faber guesses it is 15 % in South East Asia. From an antedotal perspective here, there is also wage inflation. I think increased Asian consumption is embolding surplus nations to bluff a stronger hand.

[GRG55]

Re: The FED has crossed the Rubicon

I know a Thai guy who owns a furniture company. They make high end stuff that sells for big prices in the states. When the downturn came, the company laid off workers, and consolodated a few plants. (The baht has appreciated ten percent against the dollar in less than a year.) For 18 months, things looked bad, but the company is finding new markets for it's stuff, mostly in Asia, and the profits are up. From talking to the owner, I get the sense that he has kind of said to hell with the US. There is inflation in Asia and it's obvious. Marc Faber guesses it is 15 % in South East Asia. From an antedotal perspective here, there is also wage inflation. I think increased Asian consumption is embolding surplus nations to bluff a stronger hand.

This is exactly what needs to happen - Asia needs to absorb [consume] more of its own output surplus.

The problem is that aggregate demand in Asia doesn't come close to aggregate output capacity...and that is why the region is still so reluctant to voluntarily move very far away from its mercantile economic model. And continues to exhibit the hypocracy of objecting to equally mercantile model responses, such as trade and tariff barriers, from their trade deficit counterparts.

[Slimprofits]

Re: The FED has crossed the Rubicon

The mainstream British press is 100x more honest than the crap we get in the USA. It's really amazing.

Try to find anything like this in the Times, the Post, etc.

QE has been used to help various financial institutions avoid facing up to their losses, while covertly recapitalising Western banks that are, to all intents and purposes, insolvent. Money-printing has also pumped up equity prices.

[DToM67]

Re: The FED has crossed the Rubicon

The surplus nations benefit from the status quo, and would like to see the situation somehow continue indefinitely. So determined are they to maintain this circumstance that they "vendor finance" it. Isn't that exactly what China has done with the USA? Isn't that what Germany did for years with the Eurozone peripheral countries? And isn't that exactly why China has recently, and very publicly, announced it shall purchase the sovereign bonds of Greece and Portugal, when practically no one else but the ECB will do so? Don't have the money to buy our stuff? No problem! We'll set you up with an account at Lucky Dragon Loansharking or Helmut's House of Hock...

Worse than loansharking
Pusher to Junkie: Oh, you haven't got the money? That's OK... since I'm such a nice guy I'll put this fix on your tab...

Pusher needs junkie to stay a junkie... and more like him.

[thunderdownunder]

Re: The FED has crossed the Rubicon

The US Government is not Idle. As we speak The big Fellas been through India and is going to Indonesia. He's not there to take happy snaps, its Trade Trade Trade
Hilary just invited herself and the US Military to set up in Australia (and sold us some C17 Planes)while belting out some War drum messages toward China. They are all out selling the US Door to Door.
Rome is not yet defeated, deflated Yes, But not defeated......
Whats good for the US is not necessarily good for the receiver.

[Spartacus]

Re: The FED has crossed the Rubicon

remember the old children's rhyme?

"step on a rubicon, break your economy's ... #something that rhymes with rubicon# "

From the article:
Hypocrites. The whole lot of them are hypocrites.

Edit added: The Fed could not have possibly crossed the Rubicon, which is in northern Italy. They were busy on Jekyll Island, Georgia, USA, trying to make the case that they "are not in the business of creating inflation".

[GRG55]

Re: The FED has crossed the Rubicon

From the article:

"America is now isolated and the rest of the world is furious. The widespread use of capital controls and even a lurch into 1930s-style protectionism are both far more likely than just a few days ago...

...In the aftermath of the Fed's QE2 announcement, rather than agreeing to measures that would ease pressure on the US economy, China gave the States a public tongue-lashing. Measures to cap trade surpluses would "hark back to the days of planned economies", said Cui Tiankai, who will be one of China's lead negotiators in Seoul...

...Germany also waded in, using industrial-strength language to describe the Fed's latest move. "With all due respect, US policy is clueless," remarked the finance minister, Wolfgang Schäuble..."

Now I am no fan of QE, but frankly the "rest of the world" are hypocrites, every last blasted one of them.

How "clueless" was Germany over the years that the ECB deliberately kept interest rates too low on its behalf in order to counter the deflationary effects of reintegrating East Germany at a politically correct, but economically suicidal exchange rate...and thereby knowingly fuelling - with cheap money - the excesses in the peripheral countries that a newly virtuous Germany so loves to harangue today.

How is it that the ECB is allowed to "print money" to manipulate the interest rates of Greek, Irish, Portuguese and Spanish sovereign debt, but Europe, led by Germany, deigns to criticise the Fed for doing the same? This is much like listening to someone rationalize why it is acceptable to cheat on your spouse three or four times, but "immoral" to run the score into the double digits...

...

Looks like I have some company...

How Do You Say “Hypocrite” in German?

Monday, 11/8/2010 - 5:49 pm by Marshall Auerback

Before throwing rocks at the U.S. for its spending, Germany should take a look at its own crumbling glass house.

Okay, I did a few years of German language study, so I know that the real word for hypocrite is “Heuchler”. But when I read the latest guff from Germany’s Finance Minister criticizing America’s economic policies, I’m afraid that Wolfgang Schauble’s name immediately sprung to mind for a substitute. In an unusually undiplomatic manner, German Finance Minister Schauble criticized the U.S. Federal Reserve’s recent decision to undertake another round of quantitative easing, arguing that it wouldn’t help the U.S. economy or its global partners.

He could well be right. We’ve argued much the same against “QE2″. Where we draw the line is Schauble’s subsequent comments from the same article:

Germany’s exporting success is based on the increased competitiveness of our companies, not on some sort of currency sleight-of-hand. The American growth model, by comparison, is stuck in a deep crisis… The USA lived off credit for too long, inflated its financial sector massively and neglected its industrial base. There are many reasons for America’s problems-German export surpluses aren’t one of them.

No crisis in Europe? The threat to the euro, the establishment of a bailout facility, the involvement of the IMF, these were all figments of the market’s collective imagination? Even Goethe is unworthy of such flights of imagination!

One thing is clear from the remarks that continue to emanate from Germany’s policy makers, including the latest from Schauble. They do not understand basic accounting identities. They fail to see any kind of relationship between their own export model and their trading partners.

It is ironic (and more than a touch hypocritical) that Germany chastises its neighbors, like Greece, or its trading partners like the U.S., for their “profligacy”, but relies on these countries “living beyond their means” to produce a trade surplus that allows its own government to run smaller budget deficits...

[Penguin]

Re: The FED has crossed the Rubicon

"Don't tempt me Frodo! I dare not take it. Not even to keep it safe. Understand Frodo I would use this ring from a desire to do good. But through me, it would wield a power too great and terrible to imagine."

No country can be trusted with the power of an unbacked fiat currency and all of our trading partners know it. Sure you can hang on to some semblance of normalcy for a while but eventually the power it wields will do its evil work. America did more good with this responsibility than most other nations would perhaps but in the end this is a concept that must die.

Those criticizing us gamed the system. Exchange rates and interest rates and monetary policy all were rigged to gain advantage. Sadly they have shown they aren't worthy either.

Will