Market Overview

Marc Faber: "China And The US Are On A Collision Course", Sees 10% Real Inflation In China


Given that China is raising reserve requirements to fight inflation and hinting at capital controls in response to the Fed's QE2 program, it is easy to agree with Faber's viewpoint that frames the diverging policy paths between the US and China as a “collision course.” The wider the policies diverge, the greater the chance of a collision…the collateral damage inflicted on the US and China as well as the rest of the world would be a big problem. From Bloomberg: “Economies from Taiwan to Indonesia and Brazil have taken steps to counter inflows of speculative money, and South Korea yesterday said it will back legislation restoring a tax on foreign investment in the nation's bonds.”


Elsewhere, Bernanke was defending his QE2 policies abroad today and criticism that QE2 policies are “pushing on a string.” Or worse, as in the case of the “German Finance Minister Wolfgang Schaeuble[who] said Nov. 5 he was “dumbfounded” at the Fed's actions, which he said won't aid growth and will instead contribute to imbalances by driving down the currency. U.S. monetary policy is creating “grave distortions” and causing “collateral effects” on faster- growing economies such as Brazil, Meirelles said in October. Bernanke Steps Up Stimulus Defense, Turns Tables on China


Meanwhile, Atlantic Capital frames the Fed's QE2 policies as “a hail mary toward the wrong endzone. The only question is whether the rest of his teammates will tackle him before the damage is done, and the game lost.” Atlantic Capital Management Explains Why QE2 Is A Hail Mary Throw Toward The Wrong Endzone

And sure enough, there has been domestic pushback against Bernanke's QE2 policies at the legislative level this week. There has even been some hedging amongst his own teammates, specifically Charles Plosser. But Plosser isn't tackling Ben, he is more like sucking up to Ben. Plosser Says `Premature' to Assume Full $600 Billion of Fed Asset Buying Federal Reserve Bank of Philadelphia President Charles Plosser said it's too early to assume the central bank will complete the $600 billion in Treasury purchases authorized by policy makers this month. That is the hedge. Unfortunately, Plossner was all too disingenuous when queried yd in a BB interview about QE2 policies causing dollar devaluations.  From BB: “That was clearly not the intent of this policy,” Plosser said. Instead, it is intended to keep inflation from falling and boost growth, he said. Stupid is as stupid does Charlie, the fed is devaluing the dollar precisely to reflate the economy and boost export growth.Charlie,Charlie, Charlie, that is a mouthful of doublespeak and denial. We got global warming denialists running around on Capitol Hill and we have dollar devaluation denialists running around in the Fed. The only reason the US doesn't hyperinflate right here and now is because there is too much private and sovereign debt that much be restructured between 2011-2014 from the previous credit boom of 2004-2007. After the rest of the world has restructured its debt, I promise you the dollar decline will get downright disorderly. That is when you will see gold north of $6000.


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