GB,
Agree with the things in that article. And do we really, really care what China wants? Part of the game is to force them to revalue, so I'm not sure that concern is at the forefront currently.
There are a lot of moving parts to the puzzle of the next Fed action. Get it right and win a prize <g>
This comment is interesting from ZH piece
GT
TH
Mediocritas
This article is correct. The primary problem we have is highly concentrated liquidity in the hands of the biggest risk takers in the market, and the same hands that no longer really need it. The junkie went into withdrawal, so instead of dishing out the tough love or demanding a stint in rehab, central banks simply dished out more heroin.
The Fed was very, very fast to swap crap at par in exchange for cash (liquidity providing), but there is no way to reverse this. The cure for QE-induced problems are repos, but nobody in their right mind is going to do the reverse trade at the original price because everybody knows how crap that stuff is. At the best, the Fed can swap back some high quality stuff (TYSs), but it's stuck with a lot of the toxic ABS. If a repurchase is going to happen, then the counterparty will only be prepared to pay real market value, meaning the Fed has to take a huge write-down which is exactly the same as turning existing, supposedly sterilizable injection into non-sterilized inflation.
Either that, or it pushes the loss off its books onto the Treasury and asks taxes to pay for it, socializing bank losses. In the latter case, the effective inflation is basically the same because the real economy must deflate to cover losses (as taxes are taken in) meaning that the relative state of the real economy and the ponzi finance economy is the same either way: banks get richer, society gets poorer. An example of this happening is the govt recently asking for ideas to deal with the large inventory of defaulted upon homes underpinning toxic MBS. Part of that is the Fed looking for an "out". A way to push shitty assets back to the GSEs / government.
In the subsequent environment, banks use their position of greater relative wealth to purchase firesale assets from the real economy, coming to own more of the real world. The only other option is to go Japanese and sit on that stuff forever in the hope that bubbles eventually regrow and repurchases can be conducted at the original price. It might take 20 years, more likely, it will never happen at real equivalent value (maybe nominal, but then that's actually inflationary if you think about it).
Absolutely none of this is under democratic review by the masses. It's 100% pure, unadulterated oppression, the very opposite of the "freedom" that Americans are lied to about on a daily basis and sadly seem happy to parrot back.
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