Deflationary QE | 31 comments (31 topical, editorial, 0 hidden)

ECB's Bond Purchases Will Bring U.S. Closer to Raising Rates - Bloomberg

Dollar bulls say Europe's 1.1 trillion euro ($1.24 trillion) bond-buying plan will bring the Federal Reserve a step closer to raising interest rates before the year's out.
By pumping cash into global markets, the European Central Bank may clear the way for the U.S. to tighten its own money supply without stoking volatility, according to Citigroup Inc. and Bank of America Corp. As Fed officials start a two-day policy meeting, the greenback is extending a rally that's taken it to a more than decade-high versus a basket of its peers even as bond investors express less conviction about the timing of an U.S. central bank's first rate increase since 2006.
"We've been expecting dollar strength, and it's coming quicker than we thought," Steven Englander, the head of Group of 10 foreign-exchange strategy at Citigroup in New York, said by phone on Jan. 23. Fed officials "may feel they actually have to advance the first tightening rather than put it off."

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 28th, 2015 at 01:55:27 AM EST

Re: Deflationary QE (none / 1)

Coppola:

Lets All Play QE

The Eurozone's closest trading partners include several countries whose currencies float with respect to the Euro. Although their currencies will adjust, the effect will be local monetary tightening in countries many of which are already experiencing deflationary pressures due to the falling oil price. It would be entirely understandable if they also responded by easing monetary policy.

The US could be a case in point, but is tightening, not easing?

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 28th, 2015 at 02:00:39 AM EST
[ Parent ]

This makes no sense to me... (none / 0)

With the $ rising to record levels - in recent years - why would the FED add to this revaluation - which should reduce import prices and hence inflation - by tightening monetary policy? If they are worried about the prospect of inflation and want to deflate a little, this re-valuation should do the job for them.

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jan 28th, 2015 at 05:22:02 AM EST
[ Parent ]

Re: This makes no sense to me... (4.00 / 2)

If anything, QE is a form of competitive devaluation

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jan 28th, 2015 at 05:26:49 AM EST
[ Parent ]

Re: This makes no sense to me... (none / 0)

The end of Coppola's article:

Lets All Play QE

The IMF's Articles of Association explicitly rule out manipulation of exchange rates to benefit local exporters:
Each member shall:.....
(iii)avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members;
(IMF Article IV: Obligations Regarding Exchange Arrangements)
I fail to see how a QE programme that has as its explicit objective the weakening of the currency to benefit exporters can be seen as anything other than deliberate currency manipulation in contravention of this international agreement. And I also fail to see how weakening a currency in response to QE by a major trade partner can be seen as anything other than deliberate currency manipulation, either, although it is perhaps understandable.
Why is the IMF tolerating the nascent currency wars in Europe and Asia, I want to know?

Except that the US is not weakening but tightening... The US, of course, is an importer, not an exporter.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 28th, 2015 at 05:57:40 AM EST
[ Parent ]

Re: This makes no sense to me... (4.00 / 2)

he US, of course, is an importer, not an exporter.

Bingo. We're even a food importer now (perhaps the most disgusting joke I've ever heard). We've stripped our ability to produce anything other than paper and electrons down to effectively nothing, so of course we want hard money so we can buy what everyone else is selling. Of course, that hard money policy also means there is no domestic growth, the huge private debt gets farther out of control every month, and wealth continues to transfer to the rentier class by the freighter-load. The US is charging headlong into the 14th Century. All we need is a good, old-fashioned plague.

by rifek on Wed Jan 28th, 2015 at 01:50:32 PM EST
[ Parent ]

Deflationary QE | 31 comments (31 topical, 0 editorial, 0 hidden)

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