Fed action fails to take into account Japan + China front running
November 19, 2010
Let me address the elephant in the room, why are interest rates on the rise? Two weeks ago the Fed announced its nuclear option; round 2 of quantitative easing. On paper this plan seems fool proof. However, the Fed forgot to check its math. It failed to take into account how China and Japan have begun pursuing monetary policies to protect their own economies. A possible scenario could see both China and Japan selling bonds in order to cheapen their currencies. This in turn would increase the supply of US treasuries, causing bond prices to drop and interest rates to rise. Check it out; it looks like we just might be at that turning point.
Chinese will act to protect the Yuan and to curb inflation, this will probably affect the intended outcome of QE2
Chinese Yuan vs US 10y treasuries- http://www.hiddenlevers.com/hl/u?cnH5si
Japan is an export driven economy meaning they would prefer a weaker Yen
Japanese Yen vs US 10y treasuries- http://www.hiddenlevers.com/hl/u?9mToKM
It seems what’s good for the US economy is no longer good for the global economy.
