Thursday, June 4, 2009

German Chancellor bashes the US monetary policy

Merkel is the latest foreign leader to blast the Fed and US Treasury. According to Eric Roseman:

“Over the last 12 months we’ve witnessed one of the most stunning economic crashes in history…whereby bank balance sheet risk has been transferred from the private sector to government.”

“And, with the printing presses now on full blast, it’s no wonder investors – especially the Chinese – are growing nervous as Treasury prints bonds like there’s no tomorrow. Almost on a weekly basis Treasury is auctioning tens of billions of dollars of U.S. paper.”

“According to Bianco Research, the aggregate cost of the U.S. bail-out program is now estimated at $4.2 trillion dollars – larger than the inflation-adjusted cost of WW II.”

“Grant’s Interest Rate Observer pegs the current stimulus at roughly 30% of GDP, or gross domestic product. To put this monster into perspective, the total sum of all fiscal and monetary measures during the 12 previous U.S. economic downturns since 1929 comes to a mere 39% of GDP.”

“What’s truly alarming is not only the aggressive attempt to balloon credit but the failure of the Federal Reserve to mop-up excess Treasury sales… “

“Like Britain, Germany, Holland and Ireland among others, the United States has struggled to sell longer dated government bonds recently. The risk is growing that one or several sovereign issuers will fail to auction off debt; this has already happened four times in Germany since last October – a spectacular upset because Germany is the world’s second most liquid bond market and in my eyes a far stronger credit risk that any other nation – including the United States.”

“Government has swept this crisis under the rug.”

“We all better hope that investors don’t force government bond yields much higher…because it might result in another disaster as mortgage-backed securities, CDOs, mortgage rates, housing prices and other loans tied to intermediate term rates are forced higher. Consumers can’t handle high rates.”

“We are now in the latter stages of debt deflation – saved by government. World governments will eventually succeed in growing the economy again through the monetization of debt and ultimately will fail to arrest inflation as it develops again over the next 12-36 months.”

“The consequences of this policy action will be horrendous down the road for most assets, except gold, commodities and TIPS as another dollar and possibly, euro crisis, hits the fan.”

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