November 8, 2010

Dollar Leakage Spurs Growth Elsewhere -- Seeking Alpha

Dollar Leakage Spurs Growth Elsewhere -- Seeking Alpha

A sensible evaluation by Steven Hansen of the Fed's recent decision, called QE2 (Quantitative Easing, Round 2 [round 1 was TARP]) to buy $600 billion in U.S. Treasury securities during the next 6 months as an attempt to stimulate the economy.

There is widespread disagreement about this Fed decision which was opposed by one of the Fed's board of governors.

Countries such as Germany and China are opposed to what amounts to a devaluation of the dollar by printing money.

If that's not what's going on here, what is?

Hansen says:

"...I was trying to grasp the beneficiaries of this QE2, and could only think of the USA equities market and forex / commodity traders. The belief by many is that the dollar will weaken, and companies with a global footprint will have significantly higher international profit growth (as expressed in USA dollars).
Of course, this line of thinking requires the fundamental belief that other currencies and governments will stand stand idly by while their currency strengthens and their perceived competitive advantage is whittled away. It is much more likely a currency / economic war will follow than foreign countries remaining passive to USA's quantitative easing.
It is fairly easy to identify who will suffer with the current Fed policy:
  • the old who lived on social security, bond yields and the income from their CD's (CD yields are now so low they will barely purchase a six pack of beer); and,
  • the underfunded pension funds who are now denied any low risk fixed income opportunities.
So the burden of this low interest rate policy is being carried by the old (retired) and the boomers (near retired). Our old fashioned retirement income schemes are in the toilet. In theory, it is beneficial to the alphabet soup of generations which follow as they have access to cheap money. If this were only true......."
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