Watch Out For More Deflation
- Posted by Jeff Carter
- on June 26th, 2012
One of the consequences of all the stimulus and subsequent QE is that long time traders of our markets know they are screwed up. Consistent printing of money and 0% interest rates world wide have created their own economic imbalances. As the saying goes, there is no free lunch.
The government stimulus had a multiplier effect of 0. It did nothing for job growth or GDP growth in the US. Combine the inefficiency of US fiscal policy with the continued implosion of Europe, and you have a world wide malaise. In China, because of macro economic effects, wages are rising, costs to produce are increasing. Companies are also wary of both the poor property rights system and the lengthened supply chain. China is slowing down.
The economies of the world aren’t going to contract because of government spending decreasing. They are going to contract because the continued machinations of the world’s central bankers have screwed up the costs of capital normally paid by the markets. The money that they have printed hasn’t gone into the productive marketplace. Instead, it went to shore up balance sheets and sits.
Money isn’t turning over. There is no velocity.
Notes From the Underground has an excellent post this morning on it. Here are some of the salient words that send a chill up my spine.
If the impact of FED QE is played out and little to be gained by continued new programs, what will the impact be for the markets going forward? The investor world should be very concerned about an impotent FED and an intransigent CONGRESS, especially with a very anemic global economy. At what point will the FED be forced to seek new tools to ease the BALANCE SHEET RECESSION?
Maybe we should all buy some long dated out of the money puts on the S&P ($SPY, $ES_F)? The whole world has become Japan.
Thanks for the link Instapundit.
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Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)