Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Financial Markets Tensions Rise as Global Policymakers Part Ways

Politics / Global Financial System Oct 15, 2010 - 07:29 AM GMT

By: Mike_Larson

Politics

Best Financial Markets Analysis ArticleThe tension out there is so thick you can cut it with a knife. I’m talking about the tension building between central bankers and policymakers in developed nations and their counterparts in so-called emerging market countries.

On the one hand, you have policymakers here, in Japan, and in England promising to print money until the cows come home. Their aim is to boost their faltering domestic economies and combat deflation.


But the money isn’t staying at home. It’s flowing outward to emerging markets all over the world. That’s helping wildly inflate assets, inflation, and currencies there, risking the emergence of new bubbles to replace the old ones. So foreign central bankers and policymakers are fighting mad, and starting to push back at the developed world.

How will this epic battle end? What are the causes and potential fallout of this global policy war? Let me weigh in now…

QE2 Coming, Consequences be Darned!

Federal Reserve Chairman Ben Bernanke and his fellow board members have all but promised to throw more free money from helicopters. That’s the only conclusion you can draw from the minutes of the Fed’s September 21 meeting.

Those minutes indicated the Fed would “consider it appropriate to take action soon” in order to generate inflation. I expect to hear about several hundred billions of dollars in fresh funny money printing at the conclusion of the Fed’s November 2-3 policy meeting. The Bank of Japan has already announced similar actions, and the Bank of England probably isn’t far behind.

The problem?

New money is leaving the U.S. as fast as it's printed.
New money is leaving the U.S. as fast as it’s printed.

All that free money isn’t doing a hill of beans good for the domestic economies those central banks are targeting! Initial jobless claims just jumped 13,000 to 462,000, while the trade deficit surged 8.8 percent to $46.3 billion in August.

This proves that free money and a weaker currency aren’t boosting jobs or improving the balance of trade. But they did manage to “accomplish” something: Drive inflation higher! Producer prices rose another 0.4 percent in September after a 0.4 percent rise in August.

Instead of helping the “real” economy, the cash is flooding OUT of the low-rate, low-return advanced economies and flooding IN to higher-rate, higher-return developed markets and hard assets.

Harvard University professor Niall Ferguson told CNBC a few days ago that:

“All that liquidity ends up not where it is supposed to be, which is magically creating jobs for American workers in Michigan. It doesn’t do that at all. It ends up pumping up commodity prices on the other side of the world, with lots of unforeseen consequences.”

The New York Times, for its part, warned that:

“Economic weakness and low interest rates in advanced economies are prompting an extraordinary flow of investment to healthier emerging markets, undermining their exports as their currencies appreciate and creating the risk of destabilizing asset bubbles.”

Richard Barley, writing in The Wall Street Journal, added:

“The prospect of more QE — when investors are already gobbling up 100-year bonds, record levels of junk debt and subordinated hybrid corporate issues — could create new distortions, adding to both the political and financial pressures in global markets … The snag is that policy makers in developed countries can undertake QE, but can’t control the end result.”

Foreign Officials Fighting Back and Losing … So Far

For a while, central bankers and policymakers in several foreign countries were willing to sit by and let things play out. But their frustration is growing by the day. They’re now trying all kinds of things to stem inflows into their bonds, stocks, and currencies …

  • Brazil recently doubled a “financial operations tax” on foreign inflows into its bond market to 4 percent from 2 percent.
  • Thailand just axed a 15 percent income tax exemption for foreign owners of Thai bonds, effectively making it more expensive to own Thai securities.
  • And South Korea just announced it will more closely “inspect” foreign currency activities at leading banks, a back-handed way of trying to stem gains in the value of its currency, the won.
On October 5, Brazil doubled the tax on fixed-income inflows to slow the real's appreciation.
On October 5, Brazil doubled the tax on fixed-income inflows to slow the real’s appreciation.

All throughout this period, Asian central banks have also repeatedly intervened in the market to try to prop up the greenback against their currencies. A firm called IFR Markets estimates that in late September and early October, regional central banks sold their own currencies and bought almost $29 billion worth of dollars.

But so far it hasn’t helped. The Korean won, Thai baht, Malaysian ringgit, and other regional currencies have risen anyway! So too have their bond, stock, and real estate prices — to say nothing of broad-based inflation.

This is an inherently unstable state of affairs. You can’t continue to have the Fed print like mad, and foreign and hard assets skyrocket in value forever, without destabilizing the entire global financial system. Something has to give, and any number of dire consequences — a dollar collapse, a surge in inflation and interest rates, a massive collapse in overvalued asset prices — could result.

My take?

Profit from the moves we’re seeing in the capital markets if you’re nimble and an active trader. But keep an eye on the exits. Take profits along the way. And be wary for out-of-the-blue reversals, because global economic tensions are building fast.

Until next time,

Mike

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules