Monday, October 31, 2011

More Fed Quantitative Easing to lift stocks but increase price inflation ----By Shan Saeed

US Federal reserve is trying to come up with another round of QE3 to boost the economy to bring the confidence back. The Federal Reserve may roll out more loose monetary policies, including a third round of quantitative easing, in an effort to keep the economy officially out of recession, a move that will mean more gains for stocks — but more inflation. This would be devastating for the economy.

The Fed has already carried out two rounds of quantitative easing — asset purchases from banks that pump money into the economy and send stock prices rising — and officials at the U.S. Central Bank have hinted a third round may be needed to fuel growth and ultimately, more hiring.

Side effects of such moves include rising inflation pressures, which are already on the path to getting worse. "Will it be effective? I think it will be effective in raising the stock market, absolutely. But not that much. Maybe a little.
If you raise the stock market, you will boost the economy by boosting people's confidence and spending.

Now the bad news is coming.....Food rationing is coming to USA.

Despite signs that inflation rates may cool, such as dipping global commodities prices, past quantitative easing rounds have pumped enough money into the system that consumer prices and prices at the wholesale level will continue to feel pressure to climb. US economy would be on food rating very soon. According to John Foley at the New York Times, "Food riots in 2011 are possible...."

Now I have a feeling that the world still looks and feels "nice," I have a tough time believing there's trouble brewing. It's basic human nature: why change what you're doing, if things aren't that bad?

But I believe, based on the information I've gathered... and my experience following the commodities markets for more than 12 years, it's only a matter of time before this development goes from bad to worse...

The US Government theft of the food supply will likely escalate... as US Dollar continues to weaken and as global supply routes get choked off.
Over one million Americans have heard the evidence for 50% unemployment, 90% stock market crash, and 100% inflation. Be prepared.

Any time you print money you are going to get higher inflation. There's a lot of things that can slow the onset of inflation, but that doesn't prevent inflation. I think America is in that period where US is slowing the onset, but it's clearly still starting to come, and I think its going to see it going over 5 percent next year."

Investors, meanwhile, need to rethink their strategies in light of what the Federal Reserve's policies have done to various asset classes. By unleashing enormous sums of dollars into the economy, the Federal Reserve has weakened the currency to create Asset bubbles in the emerging economies especially China.

And when the currency weakens, gold strengthens.

However, when stimulus measure stops and the excess liquidity drains out of the system, stocks can fall.

Investors are going to have to be more careful in how much exposure they take to those areas,and they are also going to have to look at alternative investments, things that are a little more uncomfortable, things like gold, certainly, but also just a little more protection. Its new for investors: If they don't want to go into more unconventional investments, they are going to have to accept some lower returns."

Reanimated recovery

The U.S officially emerged from the Great Recession in 2009, but the government can claim victory over the downturn thanks to its fiscal and monetary stimulus measures, and not to natural recovery.

While government borrowing and money-printing can act like defibrillators and jolt some life into economic indicators, at the end of the day, the economy never emerged from the downturn that began several years ago.

USA is still in the same recession it were in 2008 and 2009, but Fed suspended it with massive money printing and massive government borrowing. That's helping to keep the economy out of what really is a recession.

If the stimulus goes down, USA is going to print as much money right now and they are increasing the amount of borrowing that would lead to head back into a slower economy and sub-par growth. And if they can stimulate it again but its always on the edge of going back into that 2008-2009 original recession, unless US government is running that stimulus. The additional easing programs hinted at by Federal Reserve officials will push yields on longer-term Treasuries higher. Sovereign monetary and fiscal policies, while generating undersized real growth, have managed to produce disproportionally large inflation which is dangerous for the consumers in the long run.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.

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