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Hugh Hendry's Latest Argument For Why Monetization Will Continue
Hugh Hendry proposes a very simple thought experiment to all those (apparently the Fed) who believe that QE2 can end: who will drive global growth if the suddenly marginal economy, that would be the US for some ungodly reason, contracts, which it already is, and will do so even more once rates start rising. Sorry, but unlike last time China is not here to pick up the slack. And it appears that China will not be stepping in to fill the growth void, read inflation, (read Jasmine revolution) which can only lead to more social unrest.
The key observation from Hendry:
The ramifications of China’s actions during the crisis ensured the development of a nascent but very real over-investment/property bubble. The Chinese are at the same time nursing an unprecedented income gap between the haves and the have-nots. QE2 undoubtedly exacerbates these social disparities even further. The eerie similarities between the Great Recession and the depression of the 1920 shave to some extent dissipated, due in large part to the willingness of Asian creditors to stimulate their domestic economies and bridge the gap left in the wake of severe economic contraction in the West. Recently, however, the spectre of domestic inflation has prompted the East to remove the punch bowl. Now the question to ask has to be whether or not China would be prepared to assume the role of hero all over again if global GDP runs out of steam. The Fed's antagonistic quantitative easing program may have sapped its willingness to help out “team world”, in which case the only remedy for a prospective slowdown will be further QE and a Western commitment for rates to remain lower for longer.
Full report:
h/t Nictrades
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This is the end, Ben's only friend, the end.
of his elaborate plans, the end.
Out here on the perimeter there are no stars
like a snail crawling on the edge of a razor ... a gruesome painful death
In mute nostril agony,
bird of prey, flying high, take me on your flight
I saw a video of a snail crawling over the sharp edge of a razor blade. They can actually do it with getting cut. (don't ask for link, it was years ago - sorry)
was thinking the same, seen that one to. Same for snails.
+ the end
Al-Qaeda.
Updated spelling: Al-CIAda.
I agree with half of that.
Nice angle. Definitely your best feature.
Bottom line. If treasuries are not sold elsewhere FED must monetize.
Buy the PM's Dip.
And buy food and ammo.
The more the Fed prints, do we then swirl into the hole faster ? We need this to happen soon, painful tho it may be
"The eerie similarities between the Great Recession and the depression of the 1920 shave to some extent dissipated, due in large part to the willingness of Asian .."
Either Hugh or I needs schooling. I don't understand that collection of words. I think it's the "1920 shave" that's leaving me behind. I never heard of that one. Was it close?
People stopped shaving in the 20s because Gillette Fusion cartridges got too expensive.
Fair enough, but when was the Great Recession?
And was there a memorable depression contained within the year 1920?
What does Hendry take us for? Academics?
I understand reading is for "fags" but http://en.wikipedia.org/wiki/Depression_of_1920%E2%80%9321
If you don't have a hotline to the Fed it might be worth knowing a little history when it comes to investing.
The Forgotten Depression of 1920
http://mises.org/daily/3788
The recession of 1920–21 was characterized by extreme deflation — the largest
one-year percentage decline in around 140 years of data.[2] The
Department of Commerce estimates 18% deflation, Balke and Gordon estimate 13%
deflation, and Romer estimates 14.8% deflation. The drop in wholesale prices was
even more severe, falling by 36.8%, the most severe drop since the American Revolutionary War. This is
worse than any year during the Great
Depression (adding all the years of the Great Depression together, however,
yields more severe deflation). The deflation of 1920–21 was extreme in absolute
terms, and also unusually extreme given the relatively small decline in gross
domestic product
Holy sheet!! Hardly a close shave!
But when it comes to knowing history when investing, does Buffet know about this?
Then again when you're front running how much do ya really need to know?
Typo: the 'S' belongs on the previous '1920' thus:
"...the depression of the 1920s have to some extent..."
+13.4 trillion. Thank you I was about to correct the 50 retards who actually thought shave was intended for that piece.
typo. "have"
My guess is it was supposed to read "The eerie similarities between the Great Recession and the depression of the 1920s have to some extent dissipated"
The Great Recession being the present day.
A nice little piece from downunder.
This Time Had Better Be Different: House Prices and the Banks Part 1by Steve Keen on April 1st, 2011 at 10:02 am
Here's another excellent little clip from Oz that buttresses everything Hendry is saying here about China:
http://www.sbs.com.au/dateline/story/watch/id/601007/n/China-s-Ghost-Cities
China has vacancies just as Japan needs to vacate. Too bad about that mutual hatred thing.
Still it's gotta be creepy being the only retailer in a 500,000,000 square foot mall or the only resident in a 500 unit sky rise.
Yeah the Chinease are cash poor...hence not been able to afford those apartments. At some point there will be a deflationary hellstorm on property in China.
A planning economy that plans GDP targets via building more high-rises, and empty shopping malls. Trying to time China's bust is hard. Could be soon.
IF the FED keeps exporting inflation China may just start to sell off UST's...to send a warning shot to the US. But, inflation is the killer for China at the moment.
"IF the FED keeps exporting inflation China..." they can drop the peg, which will lower inflation but destroy their export economy.
There, fixed it for ya. China loses either way. This is war ya know.
A video for your story link: welcome to Ordos.
http://www.youtube.com/watch?v=0h7V3Twb-Qk
Thanks for the reminder SubQ.
Here's another excellent little clip from Oz...
This was an excellent video -- thanks for the link!
Monetise Brazil? And Mexico!
Annex them. we need the cheap yardmen and ethanol.
The inverse/converse (end around)! I like your sarcasm! You can can't live with em but they can baby sit your kids?
no, no Hugh... it's much easier than all that:
A body in motion tends to stay in motion.
No problem.
QE 2^3 stops and interest rates are raised by a paltry 75 points.
But somewhere in the world the printers never sleep.
How can QE end when Pres. Opuppet needs those 2012 votes? I will be curious to see how that supposed Media plant "Dimon bs Obama rift" magically turns into record donations for the TelePrompter in Chief next year from the cartel. Then again how can QE not end with 107 oil, rising commodities, falling home prices and surging metals with only a 12k Dow and the Pres hitting his lowest poll numbers in history while Ron Paul just beat out all comers in a poll last week WITHOUT mainstream coverage going into his debates. Like Hugh says(Also my fathers first name) I recommend you panic. I will be making tshirts stating that this summer for the coming end of all we know. And while we are on the subject of why the Fed needs secrecy and unlimited power I am reminded of a question from a great seer. Capt. James T. Kirk: "Why does God need a starship?
I want one of those t-shirts.
I really smile when I read all the pundits who say this is it. No QE3. My thought was will there be a QE12. Now that we can discuss. Or would the system fail long before that. Because it will fail, it will disintegrate under its own weight.
Please give me a dip so I can buy more physical. 50.00 or so, is that asking for to much.
....... luv HUGH HENDRY / read everything i can & watch every video ....... he's cool .
It's all China now....
The greatest crash in history is about to unfold
Always been wondering if they would do something stupid like devaluing and raising interest rates at the same time -just to show Japan and Turbo Timmy who's the man in the house now.
i think china will devalue a large portion of UST first...
Actually Hugh, they will change the name to QF1
Quantitative Fission 1
Quanfizz in deference to an entire island that is now uninhabitable.
The real question is: When will we go to real war, as in Number III, and who will it be with. , for what, I say 2013, versus China, for all the resources. I also say that some idiot Republican will re-institute the draft; which will lead to the conversion of America to Britain(1951)
I have a Star Gate!
WWIII will be fighting the Russians not the Chinese. The Chinese's got no oil but cheap labor.
self censored
And along that vein Hugh, does the Japanese crisis mean that after 30 years of deflation that all the reactors in Washington go POW too?
Cause 30 years of deflation must have had an effect on Japan's ability to build newer more safer ones. YES?
Just saying.
A rat will press a bar to get hits of cocaine until the rat dies. QE is no different.
We are running a protection racket on the whole world. I doubt that will end soon, but I also doubt that it will end well.
April 27th! - Beware.
First ever press briefing. Something is different.
04/27? WTF is that?
Bernake is going to give his first ever press briefing following the monetary policy decision by the FED.
http://www.cnbc.com/id/42362299/
Thanks, CombustibleAssets. Interestingly, 4/28 is scheduled for the biggest ever FEMA Earthquake exercise. Something big is coming up. They will justify QE3 later.
Buy gold and oil (USO) and sleep better at night. Of course there will be a QE3:
http://www.bloomberg.com/video/68175846/
Gold, certainly. USO, NO WAY IN HELL. Read the prospectus. It's no good.
Oil futures. Learn it.
I think the Total Return Fund speaks for all of us when they dumped $237 BILLION USD in treasuries/bonds.
AM I RIGHT?! Last time I checked I didn't have that amount of cash pissing me off in a bad investment.
Tyler - Hugh has great insights. Please post him whenever possible.
Hugh has 'Fuck You Money' because of his ability to understand the factors at work in the global economy.
There will be QE3, but not the way most are thinking.
It will come several months after QE2 ends...
The deflation of 20-21 was deep and SHORT and hard. Because nobody tried to modify it with QE.
QE just guarantees deep and LONG and flaccid.
Long, slow, hard, and deep.. just the way Ben imagined it would be. This will last until 2040, because enslavement of the planet was always their plan. After that, it's the post-industrial dark age. You'll be lucky to get a square meal once a week.
The strawman was ; China saves.
Hugh is one of the few who is an independent thinker. His insights into the economy are always fresh unlike so many of the bulls and yes even bears who regurgitate the same drivel despite the always changing economic landscape. His analysis usually forces me to look at economic events from a different angle. Thanks for posting.
he's a great Scot...
with a Scotsman's gift for speaking/brooking no bullshit.
Governing Dynamics Gentlemen, it only works when everyone plays within the best [global] interest of 'The Group', but since The Fed decided to forego the KY in The Bernank global Man-Rape, hey, don't expect China to run down to the chemist in anticipation of Bernank's second wind (third wind actually...tenacious little fucker!).
No, this is precisely why Dagong said there is a severe Credit War (Contraction leading to competition) coming in the very near future. China has absolutely no intention of playing Prison-Bird a second time, least of all to the foreplayless Fed. China would buy-up Euro-trash debt well before that would happen, and let the US scuttle itself.
The real question is, how long can the Fed hold-out after the QE2 Global Man-Rape has ended, before it revisits the Fed Dungeon???!!!
My guess is -- and you can hold me to this one -- that China and it cohorts will have renounced the US Dollar BEFORE the Fed has enough time to race down to the basement to print up some more R&R Fun-Tickets.
When China said that there will be a Global Credit War, has anyone thought to ask themselves, which currency will be controlling the flow??? Think about it, imagine if China means that the Yuan will be placed in a controlling position and with lending/exchange limits. No more loose, cheap Greenback Toilet Paper sloshing around, especially if its' much weaker than it is today. Imagine if the pull the G&S Standard 'Rabbit out of the Hat' trick within the same time period?!
Have a think about the implications of the US Dollar having to fend for itself on the global currency market without any other currency recognising it, or trading through it, as the Reserve Currency. The Dollar is pretty weak as-is, I'm guessing that's because so much is being globally traded in other currencies as we speak. But just imagine if within 1 year from today, every other currency has, through nessessity, decided to trade through the Yuan?!
In this environment, the Fed would be Quantitative Easing in true Zimbabwe style, where the expansion is no longer supported and carried along by other, strong currencies.
http://www.youtube.com/watch?v=5ITWl7CBzSA
China has been given a big role and slice in IMF. If the Commies refuse to go along, we should expect revolution engineered by CFA to take place in China. If that fails, proxy wars will be needed to further the agenda.
The Youtube is blocked in my country!
You are spot on. Has no one noticed that the fed started talking about ending QE2 early around the same time China stated there would be a credit war.
When the big dog tells you to turn the presses off, you best do it or they will extricate themselves from you and make you push the presses so hard they break.
I believe the ultimatum was delivered about 7 weeks ago when, the entire US Government financial and political system went very quiet over China manipulating its' currency. Then, there was no mention of hugely impactful events (Japan) in the Feds' last FOMC meeting minutes, even though the BOJ did massive liquidity injections.
I stand by my gut instinct, "the big dog" has indeed told the Bernank to shut down his Gimp money printer.
However, the day will come when public/political pressure will over-ride the big dogs' threat...but the world will have a new reserve currency by then so who gives a shit what the Fed does.
Before qe3 starts they are going to allow deflation fears to run rampant. Ready for a thirty percent drop in pm's and commodities?
so basically no one knows what's gonna happen
Actually, QE2,3,4, etc. is just part of a larger picture. The Fed is our government's only way out of the already unsustainable debt and future entitlement obligations. The Fed must inflate at all costs. That may or may not include "helping" to create a good economy or it may not. It is better to have a hot economy and hot money, but the money must inflate. The Fed is more powerful than our government and will have to be its savior because Congress and most Presidents simply don't have the fortitude or capability to make the hard choices. In fact, I am not sure if the American electorate has the fortitude. Between those who are fooled by leftist lies, leftist propaganda, those who simply choose to believe it and those who are completely ignorant of economics, but vote, there may not be enough people, Tea Party notwithstanding to effect any serious sustained change. It would honestly require an effort no less than that of WWII economically to right the economic ship of state. That takes a supermajority. It also takes economic pilots who actually understand the proper way to fly the economic plane. I don't think we have very many of those.
So, whether the QE's happen, half happen or stop, the Fed will stay on a liquidity path for the long term. Ben or even his successors must inflate. Frankly, most of the world is tethered to the same policies, as well.
One thing that is overlooked about China, too is that it actually has enough pent up domestic demand to prosper for a long time. While most of us look at a second, third or fourth car or upgrading carpet to tile, most Chinese still are looking at upgrading a bicycle and concrete floor. If they can create a market priced to their own level, not U.S. levels they can prosper. We need them, but they do not need us...at least not forever. We have given them the business savvy, the means of production and the necessary skills to run effective businesses. This includes expertise from Taiwan, Hong Kong, Singapore and many other countries. They can create a market not wholly dependent on the West with clever planning. Part of that would be to supplant our currency.
Currency War- Why we have already lost
If you look at the Currency War for what it is. China is winning and has been. By undervaluing their currency they have kept the standard of living lower in their country. What is 30 years of a lower standard of living to a communist regime. Their lower standard of living has raised ours to the point where our manufacturing base has fled. This high dollar has been great for consumers and consumerism but at the cost of the long term economy and society as a whole.
With China's excess money they have continually invested in our treasuries giving them further leverage over our government, while at the same time feeding our Governments deficit mentality. You cannot have three wars, low taxes, unfunded entitlement programs and not expect to pay the bill. China has successfully helped underwrite our debt knowing that an economic war is far cheaper than a physical war.
China only needed ~10 more years before they could extricate themselves from us by first selling their treasuries and de-pegging their currency. At which time our 70+ service economy would go down like the titanic while they shifted their production based economy to supplying the needs of their own middle class.
They are now in the same boat as us because our FED and Govt totally FUBARed the financial crisis of 08. Rather than letting the TBTF banks actually fail, be liquidated, imprison the frauds, let the housing market bottom, and the savers/producers of the economy pick up the assets of those banks at fire sale prices, we instead transferred the whole liability onto the government (taxpayers). At the same time the Government increased domestic spending, added thousands of government jobs, continued to war, and created this biggest government bubble the world has ever seen. With the actions of the FED the bubble is now so big that it will not only take us down but China, Japan, the EU, and most of the developing nations when it explodes. (I guess in the terms of the Currency War, we decided to go with Armageddon rather than to lose gracefully)
China only wishes we would have let the banks fail, they would have bought up a portion of the non-toxic assets, weathered the financial shock, and continued to help us finance spending ourselves into oblivion. As soon as their domestic economy was strong enough and the last of our producers minimalized they would then extricate themselves from us and let us implode like we deserve to do. At which time the global war for oil would be as good as over without them even having to fire a shot.
We defeated the USSR and communism though economic means not military might. China is and has been doing the same thing to us without having to spend their GDP on an arms race.
When your grand-kids ask you why their standard of living isn't what you had growing up. Just remember to tell them you sold their standard of living for lead based toys and flat screen TV's.
Well put, Mr. Anderson. I would not say that we've lost the currency war...yet. Remember that S. Korea and about 20 other countries do the same thing, as well. I don't think we need to worry about the Maldives, but most the others, we do. We also have not lost all our industries. I have friends who are machinists, etc. Some textiles are still here.
I think if you fight the currency war you need a few things. First, you understand it is in fact war, economic war. Like war there are casualties. We have a lot of people here who make a living off trading with the Chinese, transporting their products, moving them off docks, etc. They get killed or wounded in the war. So, before you do something like Donald Trump suggested on Fox tonight, you clearly warn everyone how wars go and how the result is never certain.
Second, you need a goal. How do you define victory and what are you after? Do you want a zero trade deficit? That will never happen. It is also a bad goal as trade deficits are a fiction and only a currency problem (another topic for another thread).
Last, you cannot exempt anyone. You do it to S. Korea, China and all the others and you make it a warning to all. We have been patsies and not fought for our currency. It's kind of like Al Qaeda was at war with us but we were not with them till the World Trade Center came crashing down.
My inclination, if President would be to give a 90 day notice that immediate tariffs of 50% would be imposed unless all countries let their currencies trade freely, ibidum exemplum, no fixed exchange rates. The next thing you have to do is a similar tariff for those who purposely devalue their currencies...like...us?!? Well, war is messy.
I don't care much about trade deficits but I do care about industry "poaching" as I call it. Someone protects their steel industry at our expense. We lose that industry, not because of their inherent superiority but through financial/regulatory and currency manipulation. That is an act of economic war.
Last, I would say to our progeny not so much that we traded their future for HDTV's but also Social Security checks, farm subsidies, protectionism, etc. We spent way more than we were willing to pay. Secondarily, we did not enforce a level playing field in industry and business.
However, I believe we are pretty much on the same side of things.
You are dead wrong. The Chinese are working their tails off producing all our goods, at low cost and for little or no profit. They are basically slaves working for food. Yes, we lose some jobs -- mainly unskilled ones. But everyone else gets a higher standard of living from the inexpensive manufacturing.
Then China recycles the money and funds our deficit. Which essentially means all that entitlement spending has been free. (You still don't think it'll ever be paid back, I hope). And with QE, where does that money come from? The fed prints it, so we're getting real goods, SS/Medicare/military... from funny money!
Now for pollution -- China has ruined their environment for this. So who wins? We print funny money. We get back goods made cheaper than we ever could do ourselves. We get back the money to finance our deficit spending. But we lose jobs that would we could never keep in a free capitalistic world.
I don't know if this is indicative of easy money or a flow into "hard" assets, but the Chinese are still spending like coked-up trust fund babies. In a jade auction a few weeks ago in Yangon, Myanmar mainland Chinese buyers---who borrow to buy---purchased $2.8 billion of rough jade, surpassing their previous record of $1.8 billion set in January of this year. These buyers are not Harry Winston or "The Continental" types; rather, they are mostly young and middle age dealers with minimal education, who have yet to learn that one does not spit on the floor of a hotel or take a bite of something at a buffet table only to replace the partially chewed morsel if they don't like it. Inveterate gamblers, many will bid up the price of a boulder merely because they have a "gut feel" about what might be hidden inside. Sometimes there is a vein of translucent Imperial jade within, and sometimes the opacity and dull color goes clean through. Either way the bill comes due. Most of these buyers borrow from loan sharks or from corporations who borrow from the major banks.
On a side note, jade sales are approaching natural gas sales as the primary means of revenue for the Government of Myanmar.
I love Chinese jade. I've been there and thought of importing it here myself. However, I didn't want to put the American jade industry out of...wait a minute.
The point I really want to make is that the Chinese have to go through their own learning curve. They have our lessons from history but most don't know them. They see the close stuff of daily buying and selling. Many will get burned, but some will do OK. The learning curve will be steep, especially for the average citizen. However, I think they are fully capable of doing well and weathering their own storms...except for the government created ones, like ours.
The US is child's play for China. China is country that has experienced and witnessed periods of great prosperity and equally great tragedy for thousands yes thousands of years. Just in the last 100 years they have experienced famine and war on their own soil that killed many people. Although I am not an advocate of war we in this country fall to pieces if one soldier is killed, trot out an army of lawyers to sue one another if someone is injured and generally have created a risk free society starting with the TBTF institutions all the way down subsidies for many segments of our economy along with an essentially risk free military. The people of China are resilient and they view the events of life through a different occular than the rest of the world steeped in the teachings of the I Ching. People die, money is lost, fortunes are made, wars are won and lost, bit or the Chinese there is no good or bad associated with these events it merely is the cycle of life. They do not have a guarantee of little or no risk in their life and that is why they are kicking our ass. Finally whoever thought about bringing capitalism to China sealed the fate of of the West and failed to do the dummy test. Capitalism is a system based on the margins. The margin on production the margin on money loaned. When you have a workforce like China has your margin will always be low because you can efficiently produce volume and make a small margin on each unit. Finally the majority of people that go to college study Business Administration or Marketing or some other useless subject so they end up in the service industry producing digital widgets which unfortunately they will not be able to eat when China lays the final bitch slap on us.
Kicking our ass? In what way? China is our modern day slave labor camp. Look at my earlier comment and think outside the box. We are winning big time.