Where's the money running to?
US equities, as you mentioned, but likely to the US dollar as well.. if only because the Fed has the ability to print them as demand increases.. And certainly the Treasury, until this year, thought they could create enough T-Bills to accommodate those extra dollars.
Buckets of money sloshing back and forth between various markets. FX warfare, IMO..
But the way I look at it, minus some huge event, a lid has now been put on the price of gold for the foreseeable future. And we're looking a huge amount of deleveraging and sovereign defaults in Europe's hugely over-leveraged financial markets (reportedly 3x the size of the US financial markets. Their loss will eventually prove to be our gain.. at least temporarily..
I've referred to what Bernanke is trying to do to ward off deflation as pumping air into a leaking tire. He can pump air into the financial system, but it doesn't fix the leak.. which is overly indebted, and unemployed consumers. People in debt, unless they are offered very sweet terms, normally won't incur even more debt so long as their employment situation is insecure, or only at vastly reduced salaries. And those who have no choice but to default and go bankrupt, really can't qualify for more credit for 7 years. Deleveraging and destruction of money via debt default/payoff is deflationary.. And that is the leaking tire that none of this QE fixes.
Was explaining to my 91 year old grandfather today why his bank is only paying less than 1% on his savings... errr.. the money he loans to that bank and calls savings..
Kind of hard to explain that the reason he is receiving such low interest is because banks can borrow from the money printing Federal Reserve at 1/4 percent, so they really don't need his money.. The TBTF banks can borrow from the Fed and park that money into the $6 Trillion in additional National Debt this administration has produced (with the complicity of Congress).. So those savers .. errr.. lenders who have trusted the banks enough to loan them their savings in CDs and savings accounts are being screwed by the Fed. And the Fed knows this.. They want these savers to go out and buy and invest in something else while the TBTF banks take the easy road back to propping up their balances sheets by taxpayer financed Treasury Debt and proprietary trading on quarter of a percent money from the Fed..
Hawk |
