Too much liquidity, by Alasdair Macleod

It’s as simple as supply and demand. American and British monetary authorities have created far more dollars and pounds than the world demands, so the value of those currencies can only go down against other currencies and against real assets. From Alasdair Macleod at goldmoney.com:

Yesterday, the FOMC released its June statement which only served to remind us that its members are powerless in the face of inflationary conditions. They refuse to accept the price consequences of monetary inflation, still clinging on to an increasingly untenable hope that price rises are “transitory”.

The fact of the matter is that the world is now awash with excess money, the two greatest inflationists being the Fed and the Bank of England. In the US, the Fed’s $120bn monthly QE continues to goose financial asset values, while the US Government has spent a further trillion into circulation from its general account at the Fed. This tidal wave of money threatened money market funds totalling over $4 trillion with negative rates, thereby “breaking the buck”, which is why the Fed has increased its outstanding reverse repos to $721bn.

Interest rates will have to increase far earlier than the Fed admits to stop foreigners dumping dollars, not just for commodities which have nearly doubled since March 2020, but for other currencies as well.

Welcome to the everything bubble, whipped up by American and British neo-Keynesian policy makers who are now increasingly cornered by their own monetary fallacies.

Introduction

Courtesy of the central banks, the world is enmeshed in an everything bubble. We used to be most aware of the Bank of Japan’s extraordinary money printing to corner the Japanese ETF market —but that is no longer a topic of conversation. The Bank of Japan now owns about ¥48 trillion invested in ETFs ($447bn), the most aggressive money-printing stock ramp in the style of John Law and his Mississippi bubble relative to the size of the market in modern times. But today’s monetary planners have dismissed empirical evidence of any dangers as pre-Keynesian, and therefore irrelevant.

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