Well experts across the pond think that the U.S. markets have already largely priced in at least $500 billion in new money courtesy of QEII expected in just a few days.
Which means if there less than the anticipated amount or, Mammon forbid, the whole thing is put off till December, then we can expect some regurgitation on the stock market. If, however, all goes as paid, sorry planned, then we can look forward to the intended, and much more entertaining, unintended consequences of flooding the world with free Greenbacks.
Personally I think it will go ahead and on time because there is not much other money around to play with. The fact to be faced in the States is that the only way the government is going to keep money moving is if it does it itself. The banks, there as here, are still not really lending domestically. The U.S. consumer though saving less and less is not actually buying that much either. I can’t help but suspect that increased consumer spending has less to do with a ‘recovery in spending’ and more to do with inflation.
Which of course will be one of the consequences of QEII. Oil is already up and forcing the dollar down will make it go up even more (in dollar terms at least). For an economy dependant on oil that should be interesting. Americans will not enjoy a hike in the cost of petrol, diesel and heating oil.
The new dollars will also be an unwelcome Christmas present for emerging economies. Brazil won’t be pleased. Neither will S.Korea, India S. Africa and a whole host of other places where those dollars will be sent to sniff out anything that can be turned into a speculative bubble. QEII will be another step toward a disorderly break up of whatever was left of G20 cooperation and coordination. I think the Fed knows this and no longer cares. Once other countries become clear that the Fed, despite talk of cooperation, has in fact opted for a ‘me first you last’ policy, then we should start to see more retaliatory measures.
Which brings me to a little bit of scurrilous speculation. Various countries have been buying gold. Russia, China, India have all bought a lot. China has been talking about buying but has not been seen buying and some have taken this to mean China isn’t keen on Gold. The fact is China produces 12% of the world’s gold and ‘buys’ a lot of what it produces. So even if we don’t see them buying, they are still accumulating.
Which brings me to my speculation. The list of countries accumulating gold is similar to the list of countries that were reported to be talking about the need for a new reserve currency to replace the dollar. It was reported that perhaps the new IMF quasi currency, the Special Drawing Rights, SDRs , might serve as global and reserve currency.
I personally think this is the usual sort of ‘brain in small echo filled box’ that describes most Western elite thinking. They think of what they would like, and imagine they heard it somewhere.
What the hell would China want with a global currency being run by another Bretton Woods quango based in Washington DC? They are better off with the dollar which at least they can apply significant pressure to whenever they feel the need via their dollar debt holdings.
No. I wonder if those who are seriously thinking of trying to unseat the dollar and create a currency which is backed by something other than debt and is not under the control of America’s corrupt banks and even more corrupt government, are investing in gold as a precursor to making a real bid for a new currency.
If you want to create a new and attractive currency you could do worse than back it with gold. Of course the western banks would hate it. They need the dollar as a limitless and fully controlled fire hydrant of free money. But, the emerging economies might love such a gold backed currency. They might see it as a way of beginning to close the flood gates of destructive dollar printing.
If several big economies had the gold, put it in a new repository and said this is the backing for a new and hard currency you can trust – it would give them immense new standing, would send shock waves through America and to a lesser extend Europe and would redraw international relations over night.
Imagine Iran, Russia and China all behind a new gold backed currency. They would set themselves as a major new alliance. An attack on Iran would suddenly become an attack on the global economy. China and Russia would create ties which strengthened them without interfering in their right to be bad tempered with each other in all other spheres. I see it as offering them all something valuable.
lastly I think Europe would in the end see major advantages for them too.
Result – isolation for America and a sudden diminution of her pre-eminence in controlling global currencies and of her ability to finance her own debt.
As I said its pure speculation.