Problems with QE2: The US can't even print money properly.

This gave a me a chuckle this morning, Government can’t print money properly.

What a totally balls up!

Its lucky that QE2 doesn't actually require physically printing money merely the Fed writing itself an IOU but really this doesn't bode well if you ask me.

Pot, Kettle, USA

To continue the theme I started with my last post, And this is why the US is Screwed. I thought I'd point out  three quotes from an article in todays Australian.

Wen Jiabao, the Chinese premier, on Wednesday rejected US and EU calls for a significant rise in the yuan, saying that it could prove to be a "disaster for the world".

On the same day, Tim Geithner, the US Treasury Secretary, said that a "damaging dynamic" of large economies keeping their currencies undervalued could push up inflation and produce asset bubbles.

The United States has been increasing the pressure on the Chinese to allow the yuan to rise, amid disappointment that it has increased by only 2 per cent against the US dollar since an apparent loosening in Beijing's currency regime in June.

So, if I'm reading this right, when you combine it with the Fed discussions saying that they will soon embark on another round of "qualitative easing", the US is basically saying 

"Hey China, we don't like the fact that you're controlling the Yuan but we're doing the same to our dollar. Shame on you, Yay us!"

Seems a little hypocritical to me!

And this is Why the US is screwed

They still don't realize the error of their ways. To demonstrate this I highlight a post from Christopher Joye's blog this morning (He's the MD of Rismark and pretty clued up in general about global financial and housing markets, worth following his blog if any of this interests you) the post is a quote from Adam Carr of ICAP (Market Broker) to quote the quote:

... [US] Treasury Secretary Geithner’s comments are anything to go by. Without even smirking, he said that exchange rates should be flexible and that large countries with trade surpluses (ie China) should allow their currencies to appreciate, rely less on export driven growth and stimulate domestic demand. ie America’s economic problems are the fault of the Asian economies and in particular China

Basically the Secretary of the Treasury is saying that because other countries are better fiscally than the US they should get the blame for the US's financial wobbles. Not that the US did or is still doing anything wrong at all. That the whole world should value the US dollar about all else. Reading other articles on the value of the US dollar you sometimes see a bit of shock that the dollar is depreciating and they aren't sure why, well this brings me to another article, this time from the Daily Reckoning (a contratrian ecomonics/markets blog) which highlights the Feds latest plans to fix the economy

It said that its first round of "quantitative easing" (AKA money printing) was a great success and that it planned to do more.

Great! For those of you unsure what quantitative easing is its printing more money, basically if you inflate things enough then the debt isn't so bad. To put it another way, if you owe say $300k on a house and suddenly your wage becomes $150k instead of $50k it'll be easier to pay off (ignoring of course the fact that all your living expenses will now be around 3 times as high as well and then there's the interest...)*
So the economic powers at be are on one hand confused  about why the US $ is depreciating and on the other hand artificially depreciating it. Basically they are economically bipolar.

In all of this discussion one should also consider whether Gold is really approaching record highs or the US$ is just tanking. Anyway, thats enough out of me.

*Some of you may recall that Quantitative Easing was Pauline Hanson's idea for fixing Australia's foreign debt issues as well. Which lead to the joke about why don't we just print US$ instead of Australian as they are worth more.

Having trouble meeting loan repayments?

Wouldn't be awesome if you could print money? 
Say you're struggling a bit on your home loan repayments, or perhaps that stumble in the market last week pushed you into Margin Call territory, you simply head into your home office and fire up your laser printer. I would have suggested using an inkjet but then if any of your 'money' got wet it would be worthless again.


Of course most of you would think that this is a ridiculous idea, but this is essentially what the US and to a certain extent the UK have been doing. Except, they are taking it to an even lazier easier extreme, why print millions and millions of notes when you can print out a couple of treasury bonds (T-bills, T-notes etc).

The end result of this is that their debt is reduced, or rather the real cost of the debt is reduced, by making their currency worth less they also make the debt less. For the most part it would seem that reducing the worth of your currency isn't the best thing to do. Essentially this is inflating your way out of debt. So the question is:

Can you inflate your way out of debt?
Unfortunately for us this is not possible on an individual basis, inflation eats away at the individual like an insidious parasite that you are never quite aware of. That 3% pay rise is essentially a pay cut if there is 4% inflation. But the US Dollar is in a unique position in the global markets as the defacto standard  against which all other currencies and a great deal of commodities are compared. So perhaps there is a chance that the US can print there way out of trouble. Although the general consensus is that this isn't really going to work but that is a discussion for a different time, the main discussion point for this post is what can Greece and the rest of the PIIGSs in the Euro Zone do and what can the financial powers that be, France and Germany do to recover the Euro?


Why Greece faces a Heraclesean* Challenge?
*Why not Herculean I hear you say? Well the nerd in me has to point out that Hercules is the Roman name for the Greek God Heracles.
The problem that faces Greece is that they don't even have the option of attempting to inflate their way to fiscal freedom. They do not control the Euro printing press (Indeed the rest of the Eurozone countries don't really either, there is a camel sitting at the control panel). So what are their options for repaying the debt, which will require 12% of their GDP to service? That is $1 in every $8 goes to paying their interest bill, not even repaying the debt. Basically they have to reduce there public service (one of the largest in the world), increase their taxes and sell some assets. They will also have to increase the retirement age (currently among the lowest in Europe). All of these options are immensely unpopular amongst the people which is what is causing the widespread rioting.

Why Germany and France are getting a raw deal!
Think of Germany and France as the sensible siblings in Europe, they went to school, they studied hard and now they have a steady, well paying job and are doing fairly well for themselves. Their pigish siblings on the hand have squandered their youth on sex and drugs and live life pay cheque to pay cheque, relying on their sensible siblings to bail them out.

The main problem facing Germany and France is the inherent weakness in the EU. When times are good, everything is great, when times are bad the EU has no power to extract punitive retribution from the member countries.

Think of it this way, if NSWs for example had to borrow a large amount of money from the Federal government. The Federal government would be able to compel payment in the form of adjusting GST revenue flows or introducing a new tax or levy on New South Welshman. The EU has limited power in the regard and it affects how the EU can react to the financial problems facing it's member countries.

One thing is sure, we have not seen the end of the economic stability problems within Europe and we have not seen the end of their effects on the rest of the world markets.