Guest Post: QE Is The End Of America As We Know It

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Mon, 03/21/2011 - 07:50 | 1081055 FoieGras
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Japan started their QE campaign in the early parts of last decade. 10 years later their currency is stronger than before. How does the "QE = currency collapse" theory explain that?

Mon, 03/21/2011 - 07:59 | 1081065 TradingJoe
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Many "Interventions"!

Mon, 03/21/2011 - 09:13 | 1081152 Harlequin001
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It doesn't. They just printed upwards of 15 trillion yen and the yen didn't devalue. All this bullshit about a yen carry unwind, didn't anyone get the memo, there is no need to sell ANY yen assets because they just created 15 trillion brand new yen. Why sell assets at a loss?

The simple truth is that the forex markets are a sham, have been for many years. If the markets don't devalue the yen then Japan has an additional 15 trillion to go foraging for commodities and foodstuffs in international markets. That's increasing demand for all food products with higher food prices being paid by those poor bastards in the Caribbean that grow bananas for example, and anyone else who had nothing to do with the idiocy of building nuclear reactors on a seismic fault, but they'll starve just the same so that Japan can fund its restructure because they don't get paid in yen, or dollars or any other currency that is rapidly being printed.

If we don't get back to a gold based Fx system soon then these people will starve by the million and these riots, revolutions and insurrections will be coming to a state near you soon. Very soon. If anyone's going to die it should be the morons who build reactors in earthquake zones and then irradiate my kids from half way round the world.

The forex markets work by international agreements between governments to foment economic growth. They have nothing to do with fair value of a currency, which is why if you aren't a member of the clique that sets the exchange rate bands you get to pay higher prices as increasing quantities of currency at increasing rates start competing for goods needed by your own people. You get the riots whilst they get the food...

Mon, 03/21/2011 - 09:32 | 1081369 proLiberty
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"They just printed upwards of 15 trillion yen and the yen didn't devalue."

 

This is 'co-inflation'.  If the major central banks all inflate at roughly the same rate, their FX cross will remain the same but the nominal price of real assets like commodities will rise.

Mon, 03/21/2011 - 09:40 | 1081417 centerline
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I'd wager it actually works against them.  Debt saturation.  The system can't take any more.

Mon, 03/21/2011 - 10:10 | 1081531 ronin12
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Just think what will happen if there is a "one world currency".

Mon, 03/21/2011 - 10:50 | 1081715 duo
duo's picture

I think gold priced in yen appreciated quite a bit in the last 20 years.

Mon, 03/21/2011 - 14:56 | 1082581 Jack Sheet
Jack Sheet's picture

Exactly. That is the point. As Doug Casey so beautifully put it, ALL paper currencies are circulating around the drain, just with different speeds and trajectories.

Mon, 03/21/2011 - 15:14 | 1082602 Zero Govt
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Harlequin  -   agree with everything you said, except, "The forex markets work by international agreements between governments to foment economic growth.." Firstly a nations currency may be 'printed' by their central banks but that's all they do control. Once it's out there they have no control whatsoever (Forex markets are too big to direct as every CB trying to control their exchange rates has been humiliated and ripped to shreds in every attempt).

Regards Govt "formenting economic growth" that is absolute and complete bollocks. The economy and international trade is entirely a private preserve/enterprise. The windbags of Govt have no influence where their economy is going, who the economy trades with and absolutely zero to do with growth. If you can give me one example of a politician encouraging growth I'll eat my sofa! Govt consumes growth, it has never produced growth in its Centuries of wealth destroying existence.

Govt follows the economy. Every Govt is a herd of nodding donkeys led by the nose on where businessmen and the economic winds blow these useless windbags (always has been, always will be)

 

Mon, 03/21/2011 - 23:55 | 1084774 Harlequin001
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Zero, I said they do it to foment growth. I didn't say it worked, and no I can't give you one example of any politician encouraging growth in anything other than military spending.

For what it's worth I do agree with your comments and I can see no way that it won't all fail miserably but until it does we have Japan printing yen and every other central bank of any worth buying it to stop an interest rate pop and a currency fail.

'Forex markets are too big to direct as every CB trying to control their exchange rates has been humiliated and ripped to shreds in every attempt...'

The BOJ seems to have done okay managing its currency for the last 30 years or so, so did many other Asian ones through the currency pegs, and yes I agree before you say it that they all ultimately failed, as we said they would, but there can be no denying that they did manipulate markets despite the forex traders for a considerable time. In the meantime prices are rising for others who do not have access to this new cash or the food that is purchased with it.

Not for much longer. No happy endings here, especially if you are poor and don't have access to central bank cash...

Mon, 03/21/2011 - 08:02 | 1081075 ArkansasAngie
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The carry trade

Mon, 03/21/2011 - 08:12 | 1081088 Djirk
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I am no FOREX expert, but one reason you can not compare the US and Japan's lost decade is the the Japanese corporations and consumers historically had a mucher higher savings rate than the US consumers and corporation. Therefore a much more stable capital footing than the US currently enjoys.

 

 

Mon, 03/21/2011 - 08:47 | 1081190 Thomas
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The other reason is that Japan has two lost decades and may be heading for a third.

Mon, 03/21/2011 - 08:23 | 1081111 Buckaroo Banzai
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Simple. The Japanese people save huge amounts of money even at .2%

Mon, 03/21/2011 - 08:55 | 1081171 Widowmaker
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Excellent point.  The US has lost (gave away) all savings to the dogs of incorporation colluding with promises of government.

Is it really any secret that civilizations like Iran (Persia) have been stockpiling gold?  

What the US measures in mere decades other cultures measure in centuries - a lesson pissed on and torn from the pages of history by the boomer/corporate generation. 

Boomers sacrificed sustainability of the entire American culture for themselves, if even through complacency.   Although it started in 1913, the accelerated shortcut occurred in 1963 when corrupt government steamrolled the public for private gain and truth died.   It has only gotten worse, and the real joke is that there are no more answers now than ever along the way.

Heads back in the sand while truth and wealth are replaced with lies and empty government promises.

Mon, 03/21/2011 - 10:56 | 1081752 duo
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Interesting.  You can draw all the lines you want on a map, but civilizations are what they are. 

The US is quickly approaching a country without a civilization (or multiple civilizations at odds with each other).  Japan is both a civilization AND a country.  Iran, if it were to shed some peripherial areas, could be in the same boat as Japan.

 

Mon, 03/21/2011 - 08:50 | 1081202 Doubleguns
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All of Japans debt is owned by Japanese and Japans corporations. They did not sell thier debt to China and other places around the world. They simply sold it to themselves which keeps their currencys strong. Their currency is so strong since is has not fallen as far as the rest of the currencys but it has fallen in relation to gold. All currencys have fallen off the clift, some just fall slower than others.  

 

 

Mon, 03/21/2011 - 09:20 | 1081323 off-the-record
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I think all of you can be right. However, I am not american and there are two questions that I wonder: If QEn goes on depreciating the dollar, how will the american society react when  emerging countries really start to buy american corporations? It reminds me Greenspan´s warning about proteccionism. And ... Do you think lawmakers could/will stop Bernanke´s QEn? Thank you.

Mon, 03/21/2011 - 14:44 | 1082518 Hacksaw
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While you have a legit concern, the real question is, what will be the reaction of America when they realize that organizations like the Chamber of Commerce are using money raised from foreign companies, some state owned, to lobby, run information campaigns for candidates, and otherwise influence governance in the U.S.? What happens when America fully fathoms the implications of such actions?

Tue, 03/22/2011 - 08:24 | 1085336 Absinthe Minded
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Like George Soros backing Obama.

Mon, 03/21/2011 - 15:22 | 1082739 Diogenes
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This already happened in the 80s when the Japanese bought Rockefeller Center, golf course etc.

There was  a lot of moaning and chewing in the press but the public didn't give a damn.

Eventually the Japanese sold a lot of these "gems" at a loss.

Mon, 03/21/2011 - 09:34 | 1081378 three chord sloth
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Currency strength/weakness is a relative function, not an absolute. When your currency strengthens it doesn't necessarily mean you're doing something right or good, it can simply mean you're doing less wrong or bad than the nations your currency is trading against.

Mon, 03/21/2011 - 09:33 | 1081381 Slim
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Similar to the recent US efforts what you have with Japan is a large increase in M1 and similar aggregates but no transference through velocity/multiplier out into M3 where that currency is put to use.  They are pushing on a string.  The only thing that has been done with the Yen is exogenous speculation via carry trade and assorted plays using their leverage. 

 

This is exactly what has happened with the USD in generating massive M1 increases to offset the crushing blow to velocity which is killing (and continues to kill) M3.  For what it's worth we still have no nearly filled that hole and speculators are out with cheap money again driving up asset prices in liquid markets and illiquid also (via government constrained supply i.e. taxpayer funded banks extending crap loans to avoid taking pocession, increasing market suppy, and selling a property producing a less than desirable market comparable).

Mon, 03/21/2011 - 10:13 | 1081559 kaiten
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Let me guess. Deflation?

I mean:

inflation = currency depreciates

deflation = currency appreciates

Mon, 03/21/2011 - 16:57 | 1083206 pslater
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95% of their debt is owned by their own citizens.  This creates perpetual demand for the currency - until it doesn't.  The demographics of Japan's population (a shrinking and aging population with no meaningful immigration) means that the baby boom generation, which have been net buyers of JGB's for decades, are now becoming net sellers.  Lower demand for bonds plus record debt levels = higher interest rates.  As usual, the timing is uncertain but the outcome is not.

Mon, 03/21/2011 - 17:00 | 1083222 naughtius maximus
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I'm awaiting the answer, Foie. Hmm

Mon, 03/21/2011 - 07:54 | 1081059 ft65
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The snake eating it's tail!

Mon, 03/21/2011 - 09:00 | 1081237 BigJim
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The problem with using such analogies is that the author(s) never prove that the situations are analogous.

Why is the economy like a tent? Why does allowing the tent to deflate (a recession) somehow fix the tear, but pumping more air in does not? Why does the tear get bigger?

I'm not disagreeing with the general thesis (misallocation of resources due to artificially cheap credit money leads to increasing economic inefficiencies) and conclusion (dollar collapse), however I find analogies like the one written here seductive... but ultimately a bit hollow.

Mon, 03/21/2011 - 09:57 | 1081478 GoinFawr
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Full of hot air?

Mon, 03/21/2011 - 10:20 | 1081599 Slim
Slim's picture

It's a solid and well articulated point.  Analogies are powerful tools in that they set they establish a comparable framework.  Not refering to the anology in this article but I've seen relatively intelligent people be given an analogy and suddenly abandon any/all critical thought on a subject.  Interestingly the particular analogy I'm refering to was dead-wrong and not only had zero scientific support but was categorically disproven many times.  It was extremely hard to convince anyone to break that mindset once established and a number would defend into absurdity.

 

If I was looking to influence a group of people and sway them, the first thing I would do would be to frame an analogy with the second some kind of short/saying making everything seem black/white even if there was no base in that. 

 

 

Mon, 03/21/2011 - 11:56 | 1081955 tired1
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Perhaps comparson to livng organsms would be more appropriate.

Mon, 03/21/2011 - 07:55 | 1081060 breezer1
breezer1's picture

what is there to add here?

Mon, 03/21/2011 - 07:58 | 1081063 westboundnup
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Aren't we 2 years and change into the so called "recovery"?   

Mon, 03/21/2011 - 08:58 | 1081225 Harlequin001
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Its like having a credit card, when you hit your limit, (and I mean the one where you spend all your money on repayments) you aren't going to suddenly start spending again because someone offers you another loan you can't repay. This is a long term bust, its hardly started and it MUST result in higher take home pay so that people can borrow more and re inflate prices. Inflation is a requirement if this money printing exercise is to succeed.

It is unfortunate that the higher rates that must inevitably result will bust everyone who is in debt long before this effect is ever witnessed leading to a total failure of the US, UK and European economies.

It will become clear by then that China and every other debt holder are no better off than any other Madoff investor sitting on a pile of defaulted paper.

Mon, 03/21/2011 - 08:14 | 1081089 John Law Lives
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Are you here to bash the site?

Mon, 03/21/2011 - 08:54 | 1081220 DavidC
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Fear mongering or giving the facts rather than a bullish sub set of them?

Give me realism over delusion any day.

DavidC

Mon, 03/21/2011 - 09:03 | 1081245 Harlequin001
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Yeah, the sky is blue, which makes me wonder why I'm making so much money from gold and silver and not from real estate...

Perhaps there might be a cloud on the horizon.

Still some of us will plan ahead and some of you will get caught in the rain...

Life's tough.

Mon, 03/21/2011 - 08:02 | 1081071 Yen Cross
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OK!

Mon, 03/21/2011 - 08:02 | 1081072 primefool
primefool's picture

there is no "money" - not any more. What we have are electronic numbers - accessible with the right codes which enables humans in society to prosper or die . If your access is ever switched off ( "sorry sir your credit card was turned down", "to access your checking account please re-enter your password" etc) .

Those in power want ALL transations to be electronic - then they can lean back in their Laz-Boys with a large flat screen TV and a game paddle and decide who lives and who dies - just for sport.

Mon, 03/21/2011 - 09:03 | 1081255 Harlequin001
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and make a dollar for every transaction you carry out...Riiiiiiight.

Who's money is it anyway?

Mon, 03/21/2011 - 08:01 | 1081073 dwdollar
dwdollar's picture

"QE(n+1)"  LOL...

That made my morning.

Mon, 03/21/2011 - 08:02 | 1081076 falak pema
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Central planning in a country where the "central bank" belongs to the private sector. Strange capitalist mix, in this case its public sector led by their corrupt surrogate noses by the private kleptocracy, in moving to a totalitarian style regime/economy. In China it's the same BUT it's the central government who LEADS and the private sector who follows in their oligarchic power mix. Subtle difference in central planning..."modelomics".

Mon, 03/21/2011 - 08:11 | 1081080 Widowmaker
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Oil speculation already ended America as it was known.

Force delivery on contracts and gas would be near $2.25/gallon or less and QE would be much less necessary if at all.

One big heist on America including food and medical care too.  It's time to break up the corporations and enforce the law.  Paybacks will be a bitch.

Mon, 03/21/2011 - 08:19 | 1081098 Yen Cross
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She was an epiphany. Does any woman on this site dispute a Black Widow?

Mon, 03/21/2011 - 08:20 | 1081104 Yen Cross
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A brown recluse looser!

Mon, 03/21/2011 - 08:27 | 1081120 CH1
CH1's picture

"Enforce the law" no longer works. The banksters own the people who write the law. (As well as those who enforce it.)

It costs $20-200 million to become a Senator. Where do you think all that money comes from? And are we to fantasize that it comes with no strings attached?

Mon, 03/21/2011 - 08:37 | 1081148 cossack55
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If I am not mistaken and I will research this, the only two entities that are exampt from ALL insider trading laws is the US Senate and the Supreme Court.

Mon, 03/21/2011 - 09:03 | 1081241 Widowmaker
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The law exists in each person.   The choice to steal or not has nothing to do with bankers.

Incorporation provides the legal catalyst for immunity to every individual therein, and the laws of people don't apply (corporation's can't kill).

This is the method, and until individual accountability occurs for crimes of corporations the door is wide open by design.

In the US, government is incorporated.  No truth, no transparency and all about money instead of people.

Mon, 03/21/2011 - 09:15 | 1081303 Harlequin001
Harlequin001's picture

absolutely spot on...

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