Comments on: 2011 to bring recovery, inflation, more euro-pain http://blogs.reuters.com/breakingviews/2010/12/23/2011-to-bring-recovery-inflation-more-euro-pain/ Mon, 26 Sep 2016 03:26:00 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: VanessaRozier http://blogs.reuters.com/breakingviews/2010/12/23/2011-to-bring-recovery-inflation-more-euro-pain/comment-page-1/#comment-7103 Wed, 20 Apr 2011 22:51:11 +0000 http://blogs.reuters.com/columns/?p=4929#comment-7103 Your prediction about the Fed raising interest rates is looking like a premature statement. In late 2010, I would have agreed with your hypothesis, and today I wish it were correct. But now that we’re almost half way into the year, things aren’t looking like they will change before the fourth quarter – last year’s fourth quarter finished out the largest annual growth in six decades. Prices are steadily increasing, especially as turmoil is rearing its head in the Middle East and natural disasters are affecting Asia and even other emerging and developed countries.

While it makes sense to say that the economy is growing and inflation is rising, so interest rates should rise, Bernanke is stuck in a dilemma of choosing between preventing a depression by stimulating the economy through monetary easing, and preventing higher inflation, thus major depreciation of the USD with this huge increase in circulation of the dollar…as a result of this monetary easing.

Where is the balance? The dollar has been the safe-haven currency for the world for decades and, contrary to speculation stating otherwise, will most likely remain as such for the foreseeable future. This being said, the Fed has made the world stock of US reserves less and less valuable by keeping rates near zero – the lowest of all industrial countries. This has repercussions that we’ve begun to see with U.S.-Chinese negotiations over the overvaluation of the RMB. This currency debate has Bernanke in this peculiar position – to raise rates or not to raise rates. So far, he has chosen the latter. And today, the United States, and the world for that matter, is stuck with the lowest valued dollar in 15 months, oh! and not to mention inflation too.

Three years after the beginning of this financial crisis, the U.S. seems to be in a better position domestically to raise rates to stem inflation and devaluation. While the Fed is in the process of buying $600 billion of bonds by its June 2011 deadline, I don’t see them then raising interest rates. In my opinion, inflation will increase and exchange rates will decrease a little while longer before the Fed abandons QE2 policies. Hopefully countries with large USD reserves will be able to hang in there while we’re all taken on this ride. The chairman, I think, is waiting to see sustainable growth before it makes an interest rate change, which makes sense, but what side affects will the American people and the world see in the meantime?

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By: DrJJJJ http://blogs.reuters.com/breakingviews/2010/12/23/2011-to-bring-recovery-inflation-more-euro-pain/comment-page-1/#comment-5551 Tue, 28 Dec 2010 20:10:50 +0000 http://blogs.reuters.com/columns/?p=4929#comment-5551 The US should: Drill all our own oil (we need the hundreds of billions & jobs), make 25% of the government jobs PT or temp (like the private sector), speed up the patent process (spur innovation) and change to a flat/fair tax (too complex, too much favortism and too many tax evaders)! Embrace this kind of change and the economy will rebound and home prices will firm up! Or, ask what your country can do for you, remain in denial and prepare for violent civil unrest and finacial disaster! Do the math-our deficit, debt, housing defaults, wars/war on terror, student loan defaults, unfunded entitlements, state deficits, etc etc etc! No brainer!

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