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Why The Fed’s Adventures With U.S. Government Debt and China’s Interest In Natural Resources Could Flare Up Inflation

October 27, 2010 by fundmanager

The Fed has recently announced QEII (quantitative easing two, named like this in fond memory of QEI, which has saved us from a re-run of the Great Depression at the onset of this financial crisis). Could this be a hint at China’s growing reluctance towards investing in U.S. treasuries? Given current low yields, it seems reasonable to assume the Chinese aren’t thrilled.

Our biggest trading partner China has been by far the biggest investor in long-term U.S. government debt, as it needed a safe haven to bank its mounting trade surpluses. Should China seriously shift its focus towards buying up natural resources such as energy, rare metals (needed to manufacture technology products) and commodities, we would be looking at inflation at some point down the road.

If we do contract inflation, the Fed will be forced to resort to a contractionary monetary policy with higher interest rates.

This would bring the stuttering U.S. economy to an instant halt.


Filed Under: Commodities, Economic Forecasts Tagged With: China, inflation, QEII, the Fed, U.S. government debt

George Soros at Columbia University about Deflationary Perils of Austerity

October 6, 2010 by fundmanager

George Soros gave this speech at Columbia University on October 5. 2010 warning about the deflationary perils of austerity and speculating about what governments should be doing instead. See if you can tell where the markets are headed (and buckle up for safety!)

As you know I have written several books which serve to explain the crash of 2008. Two years have elapsed since then – it is time to bring the story up to date. That is what I propose to do today.

[Read more…]

Filed Under: Commodities, Economic Forecasts, Forex, Stocks, Taxes Tagged With: austerity, deflation

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