The People's Bank of China Makes QE3 Look Like Central Banking for Prudes
On
September 13, 2012, when the Federal Reserve Open Market Committee decided
"[T]o increase policy accommodation by purchasing additional agency
mortgage-backed securities at a pace of $40 billion per month[,]" the reactions
ranged from exuberance to horror. The exuberance showed itself in the stock
market, and the horror came from anyone holding dollar bills for the long term.
Jim Grant sent his condolences to the lab rats. Marc Faber said his goodbyes to
the middle class. Although the Federal Reserve has hammered more nails into the
coffin of the U.S. dollar's purchasing power, let's not loose focus on the
bigger inflator: the People's Bank of China. What does US$40 billion a month
look like? The PBC is very familiar.
Last month, both
Keynesians and gold bugs celebrated the U.S. M2 figure surpassing $10 trillion,
but for completely different reasons. By the end of this year, they may also be
able to celebrate another nominal milestone: The renminbi M2 money supply
surpassing ¥100 trillion. Yet, the exchange rate is still hovering around one to
6.3000.
Comment: There is not much market turmoil because all main markets flood the system with money. It makes not much sense to move out of the dollar when the euros, yens and yuans are also getting inflated and sometimes even more than the dollar. The current dullnes in the currency market is the proverbial tranquility before the storm.
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