I am getting ready to boil some crawfish so just a few quick questions.
1. So we have finally figured out how to export more stuff but it is inflation?
2. Isn't the Fed almost the only entity purchasing large amounts of long dated bonds? Aren't we also selling record amounts of bonds just about every month, including that which is sold to the Fed? Japan just got FUBAR'd and as you state our intent is to fuck China...... who is going to buy the bonds?
3. Isn't one of the stated goals of QE to keep the cost of borrowing low, including the cost our government pays to borrow? Keeping in mind the above record bond auctions, wouldn't putting substantially more bonds on the market sharply reverse that? Are you aware of how the Federal governments debt is structured? If you are, what would even a moderate increase in their cost of borrowing do to the budget in very short order?
4. Are you implying that QE has/had absolutely no part of the sharp rise in almost every commodity since it started?
1. A natural by-product of China's peg is that they have an inability to strengthen against a weakening currency. This causes inflation and warps their capital markets. In a float they would appreciate, but now they're stuck depreciating. This floods their domestic market with currency further reinforcing the inflationary cycle.
2. If China is forced to float, the labor arbitrage takes a *HUGE* ding. You'd see jobs come back into the US on a marginal cost basis (where most manufacturing resides). This would increase our own tax revenues. I would also, simultanously, support a tax-holiday for repatration of foreign residing capital and profits. This would bring hundreds of billions back into the US.
Keep in mind, China's investment in the US is only a by-product of their peg. They peg the currency, flood the world with cheap (currency) shit and create trade surpluses. They have to do something with those dollars. They can't swap them, else the dollar crashes (and causes inflation), so their only recourse is to buy USTs or US hard assets. They learned the problem of the Japanese during the 80s, so they don't want to buy US companies/property. They stay liquid with USTs, but they also know they can't sell those, else they shoot themselves in the dick.
They can't keep the currency pegged, otherwise they die by inflation. They can't unpeg, else the export sector dies instantly. Thus, their only recourse is to keep buying USTs.
Keep in mind, the only reason why they put the peg in place was to legitimize and stabilize their own currency. This mandate became warped when they realized if the dollar depreciated they could bootstrap their economy through cheap shit (cheap mainly because the currency once all costs are realized). The political leaders and the military (which controls the manufacturers), got drunk on power/money, and now are stuck because they dug themselves this huge hole.
3. A moderate increase in costs would pressure the budget, but it would also likely result in increased tax revenues from a strengthening economy.
4. I think it has contributed but it's nowhere near a 1:1 relationship. There are also other factors, including crop yields and geopolitical issues.
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