My comment: Few days ago I posted the four scenarios that US economic authorities might aim (1) being realistic and reasonable. For recap:
Scenario 1.- Hyperinflation. Scenario 2.- A new normal. Scenario 3.- Double dipp. Scenario 4.- US economy has already reached a new normal. American version of the Japanese lost decade. I cannot say which one is better, but I can say which one is the worst: the fourth one. It means a ridiculous GDP growth (if any), low interest rates to borrow at home and then to invest abroad, an economy based on investments abroad (it makes sense only in a country such as Japan where most householders got lots of savings). It means to turn each American into a banker who makes life lending to foreigners. But it makes sense only for those Americans who have huge savings (a tiny fraction of all Americans), how will the rest survive? In that scenario, most Americans will not have a job, either because they are hyperwealthy and they make their life lending others or because they simply cannot find a job to survive. That scenario requires a strong foreign trade account (it is not the case of US economy) based on an economy oriented to exports and/or minimal imports. And many other requirements that US economy does not meet and nobody foresee that it can meet along next decades. I can understand that US economy keep low interest rates for several months till economy becomes robust enough and then they take exit measures, even up to one year. It is a very reasonable bet, maybe one year is too risky, I cannot answer now. The global economy flows and US economy could and should take advantage of it to avoid risks. Why to aim less than that? Even while it means to face hyperinflation as a high potential risk. Or, if they pursue lower risks, they can accept scenario 2, "the new normal" (much lower standard of of life, but still a life). What Bernanke told yesterday (2) seems to be the fourth scenario, to copy and paste the Japanese economy (that only the hyperwealthy will be able to afford). Today, through Federal Reserve Bank of St. Louis President James Bullard, the Fed has repeated and clearified even more that this is what they plan for US economy (3). "Federal Reserve Chairman Ben S. Bernanke’s diagnosis of a weak U.S. economy and labor market signaled that the central bank’s extended period of low borrowing costs may get even longer." (2) . And the usual propaganda: "central bank policy will ensure that the “dollar is strong.”(2) How can they ensure that the US dollar is strong while the have near zero interest rate? They announce worldwide that anyone can get US dollars almost for free along next year? Is it a way to ensure that that the US dollar will be strong? or rather a way to ensure that the US dollar will be worth less? No way. This sounds like a joke. More Bullard says "The Fed’s “main issue” will be how to avoid spurring inflation". You are proclaiming worldwide that you will not use any ammunition to fight against inflation, therefore you are inviting inflation to go to your country and to enjoy a banquet paid by American householders. Today we know last data about inflation in USA, 0.3% up (4). I hav to remind here that, for example in China, CPI is - 0.5% (negative) (5) in October. Right now, US economy already is one percentage point worse. Reply comes in the same article “Bernanke just locked the Fed into an easy monetary policy, at least in the short term, so any implicit threat of response to dollar declines simply has zero credibility.” (2) According to Bullard this short term is longer than one year (3) That statements conclude the whole problem: that policy means to lock the Fed into an easy monetary policy that will be hard or even impossible to leave in the future because it will destroy the US economic structure and it will base all profits on financial deals abroad. Carrytrade is making US capital to flee and making US economy to starve without credit because all liquidity flees. While this might be a necesary pain in the short term (a few months) to fight against recession and to push growth, this policy is devastating if decied as the future American way of life. What they implicitely project is a deep third world country where few hyperwealthy families enjoy a high standard of life investing their money (or the mony they borrow in USA at low interest rates) abroad while te rest of the country falls into extreme poverty. I refuse to believe that this is what Americans want for their own country, it cannot be true. But I cannot conclude anything else. Then what? Peace and best wishes. Xi (1) Future potential scenarios for US economy http://groups.google.com/group/world-thread/browse_thread/thread/8cbb372788f2d498?hl=en# (2) Bernanke Signals ‘Extended’ Period May Become Longer http://www.bloomberg.com/apps/news?pid=20601087&sid=a3BlApikRmTY&pos=4 (3) Fed May Not Increase Rates Until 2012, Bullard Says http://www.bloomberg.com/apps/news?pid=20601087&sid=a6b235jJZM_g&pos=1 (4) Consumer Prices in U.S. Increased 0.3% in October http://www.bloomberg.com/apps/news?pid=20601087&sid=aRXH1qsx1Dk4&pos=2 (5) China's CPI falls 0.5% in October, decline rate narrows http://news.xinhuanet.com/english/2009-11/11/content_12430906.htm --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "World-thread" group. 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