QE2

choi

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Reports in chronological order.

(1) Bob Davis and Evan Ramstad, 'Peer Pressure' Seen as Currency War Fix.
Wall STreet Journal, Nov. 6, 2010.
http://online.wsj.com/article/SB10001424052748704405704575595853994221046.html

My comment: Just take a look at the graphic, which hints that anticipation
of QE2 (Aug. 27, 2010 when Fed Chairman Bernanke signaled) led to
(a) renminbi appreciation by about 3% so far (left panel). It is misleading,
for the report neglects to say that China had promised to raise renminbi.
(b) rise of Korean stock market.

This phenomenon occurs worldwide--because capitals moves away from bonds and
saving (due to expected low interest rates) into equities (stocks, that is)
. This explains why Dow Jones Industrial average reached a two-year high
last week, to the level prior to financial crisis.

(2) Seell Chan, Friedman Casts Shadow as Economists Meet. New York Times,
Nov. 8, 2010.
http://www.nytimes.com/2010/11/08/business/economy/08fed.html?ref=sewell_chan

Quote:

"The central bank will indirectly be financing the government’s deficits on
a scale not seen since World War II. It will buy the equivalent of most of
the new Treasury debt issued through next June. The portfolio of federal
bonds it amassed as a result of the 2008 crisis will swell further, just
about doubling.

"On this island south of Savannah * * * It was here, amid oak trees covered
in Spanish moss, that Wall Street bankers and Washington officials, thinly
disguised as a duck hunting party, gathered a century ago this month for a
clandestine meeting that helped lay the groundwork for the creation of the
Fed three years later.

Note:
(a) Jekyll Island
http://www.jekyllisland.com
is a barrier island at the southern end of Georgia sea coast.
(b) Fed will finance QE2. There is no need for China to buy anything.

(3) Fed Global Backlash Grows; China and Russia Join Germany in Scolding;
Obama Defends Move as Pro-Growth. Wall Street Journal, Nov. 9, 2010.
http://online.wsj.com/article/SB10001424052748703514904575602820114533804.html

(4) David Wessel, The Search for a New Currency System; Dollar's Reserve
Role Causes Angst, but Alternatives Fall Flat; Some Seek a Multicurrency
Option. Wall Street Journal, Nov. 9, 2010.
http://online.wsj.com/article/SB10001424052748703957804575602933358206118.html

My comment: Just check out the graphic.

(5) Sheryl Gay Stolberg and Vikas Bajaj, Unexpectedly, India Enforses Fed
Action; Obama goves a not-so-veiled critism of countries with large trade
surpluses. New York Times, Nov. 9, 2010 (title in the print).
http://www.nytimes.com/2010/11/09/business/global/09rupee.html?scp=1&sq=obama%20singh%20unexpected%20endorse&st=Search

My comment: There is no need to read this report.

(6) To make a nation's export more expensive, there are two ways, raise the
foreign exchange rate of its currency OR domestic inflation. Even if China
stubbonly sticks to its gun and lower renminbi as dollar depreciates (as it
has done since Aug. 27), the inflation, which Xinhua forecast three days ago
to be more than 4% next year, will achieve the same outcome as appreciation
of renminbi.



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