I can't speak for TJ, but suspect that we're going to see a sell off in equities and commodities as the economic (and political) climate becomes more uncertain.
I still believe the US Treasury and Fed acted in concert to deflate the value of the USD vs the Euro in order to prevent it from breaking through it's initial price of 1.19 (from 1999). Having the Euro break this level would have sounded a certain death knell for the EU, IMO.
And the fact that money was rushing to cash and treasuries with huge demand (remember all the naked selling of treasuries in 2008-9 to meet demand as interest rates approached all time lows) required more supply to be produced (issue more debt). In there eyes, they didn't see any other choice but to do a massive stimulus.
And while I don't disagree totally with having more T-bonds issued, I DO DISAGREE with how that taxpayer financed money was spent. I don't think it stimulated actual growth or job creation. It certainly hasn't stimulated entrepreneurial "risk-taking" which lies at the heart of all economic growth. We continue to see the private sector, especially in the small business area, reduce their debt levels.
In sum, as QE2 ends, without that "forced air" of gov't stimulus being blown through the economic "windsock", it will begin to sag until the private sector replaces it with private investment. That suggests that equities are due for a fall and the USD, along with Treasuries, will once again be a temporary "safe haven", increasing demand for both of them. Therefore, to meet demand for USD, the Fed will have to print more of them, or face a surge in the USD value (deflation).
Btw, the money supply is only one part of the equation when it comes to measuring GDP. Velocity of economic transactions is the other variable and it clearly seems to be waning again.
So very sad that the majority of that gov't stimulus went to inflate asset prices, instead of R&D and investment that would spur renewed economic risk-taking and productivity growth.
Edit: Let me add that if they don't raise the debt ceiling substantially, this will reduce the supply of T-bills in the market, and drive demand higher for the ones that exist. That's deflationary. It will then mean the USD will rise in sympathy, IMO as other assets lose out to the new bond bull market. |
