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.