Yesterday, Reuters reported that the Fed is pumping out new US dollars at the rate of close to $2 billion per day (For the mathematically inclined, that’s $1.3m new dollars per second, day in, day out). The total US dollars in circulation has ballooned by an annualized 24% since the Federal Reserve turned on the money pumps in September. We’re now up to $8 trillion and counting (that’s double the money supply at the turn of the Millennium).
What does all this mean? It means way too many dollars. With Obama’s upcoming spending plan and interest rates already effectively at zero, it’s likely that dollars will keep breeding like rabbits. The Washington Post wrote today of the disruptive effects this could have on stock prices. When excess dollars are not in property or in stocks, they have to go somewhere - In the first half of last year this wave of cash and fidgety market traders led to crazy commodities. In the second half (as the exodus from property and stocks continued) it led to crazy currencies (From the Australian Dollar to the British Pound).
The news today is full of corporations asking for cash. The news tomorrow will be full of governments asking for cash (Actually, it’s already started). Cash is flowing with greater power to disrupt than at any other time, and no institution has the attraction to give it a home. So in 2009 asset values will continue to yo-yo (including currencies) – some to breaking point. If you’re a Trader – Good luck! If you’re not - diversify any assets you have (if it’s in cash – have multiple currencies), and focus 100% on building value. There’s never been a worse time to try and time the markets. There’s never been a better time to start a business.
Deliver a product of real value, grow off your own cash flow, and once that $3 trillion-a-day river of global cash gets tired of bouncing between moving markets and seeking safety, it will settle back into the time-trusted job of seeking great investments and, by then, you’ll be ready for some of it to find a home with you.
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2 comments:
Great post Roger! 2009 into 2010 will be an interestingly rough ride. Agreed on value being the way out, but looking back it seems that money flowed to 'perceived value' kept on flowing as the 'value deception' fed off of itself. Just wondering if it will flow to 'stable value' i.e. solid cashflow business and not a 'dot-com' boom or bust kind of business in the next cycle, now that the boom/bust approach clearly had a downside? But then reminded of how easily we forget and just move on...
Latest on mo' money:
US gambles freedom on risky printing press policy
David Hirst - February 5, 2009
The end of an unwritten, 15-year-old agreement brings great uncertainty.
IS THE US not just thinking but doing the unthinkable? Is the assumption that has underpinned the world economy since China emerged as the new and great Asian powerhouse and the buyer of US Treasuries over?
Do the actions of the US in repeatedly accusing China of currency manipulation and enacting protectionist policies represent a deliberate move to press the economic nuclear button and bring on "mutual assured destruction" (MAD) of the 15-year arrangement whereby China provided the US with cheap consumer goods and purchased US securities and Treasury bonds to prevent America's financial collapse?
The answer appears to be yes.
In what would be the most catastrophic and world-changing move in recent memory, the US appears to be committed to replace China's purchase of its securities with printed money, thereby moving to end the fundamental underpinnings that have governed relations between the most two important economies of the world.
Steve Keen, from the University of Western Sydney, said yesterday the US treasuries auction market was now a sideshow.
Associate Professor Keen said by way of evidence, the US money supply doubled between 1994 and 2008 and "Bernanke has doubled it again in just the past four months".
"The US has essentially abandoned conventional ways of raising money," he said.
Asked about US Treasury Secretary Tim Geithner's attack on China's currency manipulation, Keen said that the rules of the game had now fundamentally changed and the US was, in expanding its money supply, pursing a policy eerily similar to Fed policies that preceded the Great Depression.
Keen, who last week was interviewed by The Wall Street Journal and is fast becoming a world-recognised economic authority, outlined in his recent Debt Watch Report that Bernanke's famous "helicopter drop doubling of base money will be impotent against the US's credit crunch".
Most economists believe the US and China are bound irrevocably by US debt and China's continued purchase of that debt. They assume the US, with 46 states insolvent or approaching insolvency, will suffer immediate MAD if China ends the long financial arrangement.
But with the US entering a period of deflation, its economic leadership appears to be doing the unthinkable — going it alone and letting the electronic printing presses take care of the huge sums required to keep the nation afloat. The consequences for the world economy are incomprehensible as China's purchases of US treasuries underwrite the US's unquenchable demand for money to service its multitrillion-dollar public debt, which President Obama said recently would reach $US11 trillion ($A17 trillion) this year.
Faced with the huge sinkhole created by the financial meltdown and the prospect of deflation, US Fed boss Ben Bernanke has been printing money so rapidly that the US is being flooded with liquidity. This is beyond unprecedented.
... more http://business.theage.com.au/business/us-gambles-freedom-on-risky-printing-press-policy-20090204-7xyv.html?page=-1
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