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Winners and Losers in the Global Money Printing War

Interest-Rates / Quantitative Easing Nov 05, 2010 - 10:30 AM GMT

By: Mike_Larson

Interest-Rates

Best Financial Markets Analysis ArticleThere’s a Great Global Money War raging right now — and the U.S. is losing.

That’s the inescapable conclusion I draw from the market action I see on my screens … the headlines coming across the tape … and the actions being taken in the financial capitals around the world.


Here in the U.S.:

  • The Federal Reserve is keeping interest rates pegged to the floor in a range of 0 percent to 0.25 percent. And it just announced plans to buy as much as $900 billion in Treasuries through mid-2011 (including new asset purchases and reinvestments) …
  • Politicians are bickering about the small stuff while our debt load continues to spiral out of control …
  • Our currency is crashing against virtually every form of money on the planet! And all the dollars the Fed is printing aren’t doing squat for the domestic economy. Instead, they’re flooding out of the country to places they’ll be treated much better.

Meanwhile, in many overseas economies, central banks are raising interest rates to much more attractive levels. Policymakers are clamping down on speculation and taking prudent steps to grow their economies in a healthy fashion. Their currencies, stocks, and bonds are attracting a flood of capital we could only dream of.

The ramifications will be severe. The consequences for your wealth will be dramatic. So now is the time to get on the right side of this epic battle — before it’s too late.

Fed Thinks It’s Helping … but It’s Doing Anything But!

This week, the Fed stuck to the plan it’s been hinting at for weeks. It announced it would buy $600 billion of new, long-term Treasuries. It will also reinvest money received from the maturing of old securities — to the tune of as much as $300 billion.

The current phase of the plan is slated to run through the end of the second quarter of 2011. But the Fed also left the door open to even MORE money printing, saying it will

“… regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.”

Chairman Ben Bernanke honestly believes that what he’s doing is right. He thinks that driving inflation higher is better than the alternative. He actually believes artificially inflating stocks, commodities, and other assets is a wise choice.

Me? I think he’s nuts!

Maybe that sounds harsh. But frankly, I don’t care. Too many people have given the Fed too much deference for too long. It’s time we speak frankly.

'Insantity: Doing the same thing over and over again and  expecting different results.' - Albert  Einstein
“Insantity: Doing the same thing over and over again and expecting different results.” — Albert Einstein

Under Alan Greenspan, and now Bernanke, we’ve seen massive bubbles resulting in part from way-too-easy monetary policies. Some have already popped. Others will clearly do so in the future. Dot coms. Housing. Commodities. Bonds.

Yet the Fed shows no sign of learning from its mistakes. It just keeps doing the same thing over and over and expecting a different result. As Albert Einstein famously said once, that is the textbook definition of insanity!

The Dramatic Consequences — and How to Protect Yourself and Profit

The Fed’s ultra-low rate policy punishes both domestic savers and foreign investors looking for attractive returns. But that’s only half the story. At the same time the Fed is running a super-easy policy, foreign central bankers are behaving prudently — RAISING interest rates to tamp down inflation and restore normalcy to their money markets.

In fact:

  • The Reserve Bank of India just raised rates for the sixth time, by a quarter percentage point to 6.25 percent …
  • The Reserve Bank of Australia hiked rates for the seventh time, also by a quarter point, to 4.75 percent …
  • Central banks as far afield as Israel and China have done the same.
Money will go where it's treated best.
Money will go where it’s treated best.

The result? Capital is pouring OUT of the U.S. and IN to foreign economies where it will be treated better.

According to the research firm EPFR Global, fund inflows for emerging markets totaled $49.4 billion for stocks and $39.5 billion for bonds in the year through October. Those figures are the highest on record.

Meanwhile, the Investment Company Institute found that U.S. stock funds have seen $71 billion in outflows during the same period!

Folks, we should be doing things on the monetary policy to make the U.S. MORE attractive for investors. We should be taking steps in Congress to enhance the attractiveness of investing, hiring, and building here. But we’re not. We’re doing precisely the opposite — and the result isn’t pretty.

Foreign economies are booming while the domestic economy is just muddling along …

Foreign stocks and bonds are massively outperforming …

Foreign currencies are trading at some of the highest levels against the dollar in years … or in some cases, EVER.

The best way to protect yourself and profit? Follow the money! Invest with the winners in this global money war and avoid the sinners. If you want more specific suggestions on how to do so, take a look at this month’s Safe Money Report. You’ll find plenty of suggestions there.

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.


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