Sunday, April 03, 2011

A timely Telegraph warning on the economic catastrophe ahead!

Sunday mornings provide time for quiet reflection. Chew over this article in the Sunday Telegraph, by Liam Halligan, chief economist at Prosperity Capital Management, and contemplate the approaching economic Armageddon now faced by both Britain and the USA. A quote:

The only currency the White House understands is power politics - and Beijing is turning the thumb screws. Xia Bin, a long-standing adviser to China’s Central Bank, recently referred to the unbridled printing of dollars as “the biggest risk” to the global economy. “As long as the world exercises no restraint in issuing dollars,” he wrote, “then the occurrence of another crisis is inevitable”.

Were it to happen, another round of money-printing - QE3 - would cause a major diplomatic protest led by countries America cannot afford to upset. The US government also knows, although it denies it, that the more money it prints, the more speculative pressures push up global food prices. While the causes behind current Middle Eastern unrest are complex, it was surging food price that provided the spark.

The danger now is that when QE2 ends in less than 12 weeks’ time, global markets will be rocked by a surge in Treasury yields. Since mid-2009, QE has been used to buy up, along with dodgy mortgage-backed securities, swathes of US government debt.

This is how the Obama administration – and the British Government too - has been able to keep spending. Once the Fed exits the Treasury market, though, not only will the fiscal pump-priming stop, but US debt-service costs could balloon.

The EU will concurrently have to find a home for the debts resulting from the recent mysterious activities of the ECB, bad news for any Euro Group members with elections due!

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