Saturday, November 13, 2010

The Currency War Continues

By the end of this past week, the stock market seemed to be a little spooked. Perhaps it was the sighting of that missle off the coast of California.....

Rumor was that the missle was fired by Ben Bernanke as a big blow in the ongoing global currency war. Maybe it was filled with freshly printed dollar bills and on its way to China.

All kidding aside, the United States is exporting inflation to China and other emerging markets quicker than you can say Mao Tse Tung. And as mentioned in last week's article, the rest of the world is not happy about the Federal Reserve's massive money printing.

The latest announcement by the Fed of another $600 billion, brings the grand total of "magic" money creation to $2.3 trillion printed in the past 24 months!!

No wonder that US Treasury Secretary Timothy Geithner was laughed out the room at the G20 summit when he said that the US was not "intentionally" trying to weaken the US dollar.

The German Finance Minister said that "The United States has lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies."

Minister Schauble went on: "It's inconsistent for the Americans to accuse the Chinese manipulating exchange rates and then to artificially depress the dollar exchange rate by printing money."

For good measure, he added that the US Treasury and the Federal Reserve were "clueless".

Speaking of China...its debt ratings agency Dagong downgraded US debt. In speaking of the downgrade, it had this gem: "It is likely for the current loose monetary policy to postpone the occurence of difficulties. Yet in the long run, it will be proven to be a practice resembling drinking poison to quench thirst."

The list of countries goes on - the UK, France, India, Brazil, etc. The rest of the world is growing tired of the US trying to dump its problems on the rest of the world by printing dollars, thereby creating global inflation.

Perhaps the US should consider austerity measures like the UK has taken instead of creating massive new government entitlements. A "diet" and some belt-tightening is the right prescription. But also the most unlikely one.

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