We should all start preparing for inflation, immediately. Buy stored food, I have a link on the right side bar, and store some water. Any big purchases are necessary in the next year, you should consider now. Anything made with petroleum especially, which is just about everything…
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Dollar at Risk of Crashing, Triggering Inflation: Strategist
Federal Reserve policies have put the US dollar the risk of crashing, which will hammer consumers through higher prices, strategist Axel Merk told CNBC.
Investors should brace for a much weaker dollar // [.DXY 76.44
0.56 (+0.74%)
] // by diversifying out of the greenback and into currencies of other countries, said Merk, chairman and chief investment officer of Merk Investments, of Portland, Maine.
Merk spoke the day after the Fed said it will be embarking on a program to buy $600 billion in Treasurys in an effort to pump up the economy by increasing liquidity. Critics say the program, also known as quantitative easing, will further devalue the dollar and ultimately create inflation.
“It’s with the best of intentions but I think it’s a very, very wrong policy,” Merk said in an interview.
Consumers should prepare for another turn of events like the spring of 2008, when oil prices // [US@CL.1 86.77
“One of the key things here is a weaker dollar has traditionally not been inflationary because Asian exporters like to absorb the higher cost of doing business,” Merk said. “There comes a breaking point when Asian exporters can no longer absorb that higher cost of doing business. They’ll raise prices and guess what? They will stick.
“So we will have a cost-push inflation. We’re going to get inflation but not where Bernanke wants to have it. We’re not going to get wages to go up. We’ll get the price at the gas pump to go up instead.”
The current climate of low inflation has spurred comparisons to Japan’s “lost decade” where deflation prevailed.
But Merk said the difference in monetary policy between the two countries will guarantee different outcomes.
“We won’t be like Japan because we finance our deficits externally. So our fate will be different,” he said. “We’ll have a dollar that may crash in that process. The issue here is that (Fed Chairman Ben) Bernanke wants to have a weaker dollar. This is the first Fed chairman who is seeking to have a dialogue about the dollar.”
Merk said forex investors still can navigate a difficult environment but need to be diversified and should focus on countries that will be looking to clamp down on inflation by boosting rates and backing their currencies.
“There’s no such thing anymore as a safe asset. Cash is no longer safe,” he said. “Do what central banks do, they diversify to baskets of currencies. That’s what we try to do. It’s a pity for any savers out there, but we’ll survive. We’ll get through this.”
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Fed bond move spurs backlash from Asia to Europe
BEIJING (AP) – China, Germany and Brazil warned the Federal Reserve’s move to inject money into the U.S. economy might harm the rest of the world, though Beijing said Friday the tactic was understandable because of the slow recovery.
China’s central bank chief said the debate about the Fed’s attempt to spur growth by pumping $600 billion into the economy through purchases of Treasury bonds highlighted the need to reform the global financial system.
Some governments worry the tactic, which will lower interest rates and is known as quantitative easing, might send money flooding into their markets seeking higher returns. That could push up exchange rates, hurting exports by making their goods more expensive.
The conflict might hamper efforts to fix strains in the global economy at next week’s Group of 20 summit in Seoul. Leaders from the United States, Japan, Germany, China and other governments that account for 85 percent of the global economy hope to make progress on reducing trade and current account gaps. Some nations such as the U.S. buy far more than they sell to the rest of world while many developing countries including China run vast surpluses.
“If the domestic policy is optimal policy for the United States alone, but at the same time it is not an optimal policy for the world, it may bring a lot of negative impact to the world. There is a spillover,” said Zhou Xiaochuan, governor of the People’s Bank of China, speaking at a business conference.
“We have to solve this problem by reforming the international currency system,” he said, without giving details of possible reforms.
The Fed said it will make Treasury bill purchases over eight months in an effort to lower long-term interest rates and revive economic activity.
Germany joined in the criticism.
“I don’t think the Americans will solve their problems with this and I think they are creating extra problems for the world,” Finance Minister Wolfgang Schaeuble told ARD television late Thursday.
Brazil’s finance minister, Guido Mantega, also criticized the Fed, saying Thursday its move would devalue the dollar and hurt Brazil and other exporters. He said bond-buying would not be effective without changes to stimulate domestic consumption.
Zhou said he understood the Fed’s focus was on the U.S. economy and helping to create jobs while keeping inflation low.
“We have a slower recovery of the economy, high unemployment and low inflation. Under these circumstances, from that perspective, when we have a policy for a very low rate that is very close to zero, and for quantitative easing, it is reasonable. We can understand … under current circumstances, of course,” said Zhou. He was speaking at a conference organized by Caixin, a leading Chinese business magazine.
Zhou said Chinese central bank officials met regularly with their Fed counterparts, including Chairman Ben Bernanke, and the Americans gave detailed explanations for the monetary changes.
Also Friday, a Chinese diplomat said Washington should act responsibly and give other governments a thorough explanation.
“The international community has every reason to feel worried, so the U.S. side owes it a proper explanation for the move,” Vice Foreign Minister Cui Tiankai told reporters.
The Philippine central bank said Thursday it would “remain vigilant” about the possible impact of the Fed’s action. A bank deputy governor warned the money flows from the Fed’s move might add to instability in emerging markets.
Zhou said Beijing’s controls on capital flows should shield China from a possible surge in speculative “hot money” triggered by the Fed’s move.
Beijing keeps its financial markets isolated from global capital and tightly controls the exchange rate of its yuan, which has risen more slowly against the U.S. dollar than some Asian currencies such as the Thai baht.
Zhou defended Beijing’s decision to move gradually in easing currency controls despite U.S. and other foreign pressure to let the yuan rise faster.
Beijing promised a more flexible exchange rate in June and has allowed the yuan to rise by 2.5 percent since then – far less than critics want. They say Beijing’s controls keep the yuan undervalued and give China’s exporters an unfair price advantage, swelling its trade surplus and costing jobs abroad.
Comparing policy changes to the multiple ingredients used to make traditional Chinese medications, Zhou said currency changes were part of a package of reforms including encouraging domestic consumer spending that would boost imports and narrow China’s trade gap.
“We do not want to emphasize that one ingredient will deliver a cure,” he said.
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Brazil ready to retaliate for US move in ‘currency war’
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