You know you are in trouble when.....

Monday, April 13, 2009

There is a growing sense of unease that I have every time I read about the US Federal reserve buying US Treasury debt. It is like paying your Mastercard with your Visa, something we are told from early on in school is just jot a smart way to handle your money. I have written about this several times and am doing so again because last Friday, the US Fed policy maker warned that the US was flirting with severe inflation if it did not stop spending so much. Actually, the term that was used was the US needed to start "winding down" its spending habits or it runs the risk of "a hyper-inflationary surge."

Now, Forex traders and online Forex buffs know much about what hyperinflation can do to a country - just look at Zimbabwe. But for this to happen to the US would be devastating. The fact is that the US has spent nearly 12 Trillion Dollars so far this year, and their gross GDP is 14 Trillion. The question has to be asked, is it too late to stop the inflation or will we see it anyway. At the rate that the US has spent, and the means by which they have done it, specifically monetizing their own debt (probably because nobody else would at this point) and the fact that the US is the most significant player in the financial world, what would hyper-inflation look like there?

Another worrying trend for Forex traders and brokers to consider is the fact that China has just reached 1.9 Trillion Dollars worth of foreign debt holdings. That is to say, US debt holdings. That number is correct - China holds in their hands roughly 15% of the US GDP in debt form - this should trouble us all - especially when China is suggesting a new reserve currency for the world to use. Perhaps it would be the Yuan if they would stop tinkering with it to make their goods so cheap.

Late last week a large US bank that received 25 Billion Dollars in US aid in November 2008, announced they would be turning a profit of 3 Billion in the first quarter of 2009. One needs to wonder if that includes the 25 Billion they got from the US taxpayers - and if not, why did they need the money in the first place? With everyone thinking that the economy has turned a corner, no one is looking at the big picture. This is going to be a hectic week for the Forex - with the Dollar holding high against the Yen, watch the Euro and GBP in play.

And please. When you read a piece of good news - ask questions, don't just look at what is being said, look at what is not.


Anonymous April 23, 2009 at 9:57 AM  

anyone who thinks that retiring 14% debt over the next 6 yrs for 3% over ten does not know what they are talking about. The US Govt will save BILLIONS of dollars over then term when they retire this debt. How can you not know this????

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