When the Fed pumps money into the economy, it is in effect pumping money into the combined Chinese US economy. Guess where all the money will end up. In low cost/ high return China ofcourse.

So you have inflation in China and deflation in USA. If the Chinese dont give in on exchange rate and they just tighten then there could be a hard landing in China. Thats after a hard landing happens in other developing economies and US enters another recession. Hopefully sense will prevail before then.

But it’s not true that when Witless loses, everybody loses. With QE-1, his Wall Street banking buddies “made out like Flynn” (Earl Flynn was a famous 1940s era movie star and lady’s man).

The key, I realized, is simple: the whole thing revolves around trying to figure out relative rates of inflation, which is to say money creation, which is to say the acquisition of private wealth by either governments or central banks.

China’s export driven economy benefits an elite, at the cost of daily hardships for ordinary Chinese. It’s really not different in principle or practice than our own Robber Baron era–at least as it is portrayed in the myths of the era–with the difference that the Chinese have far, far fewer rights as workers or citizens than Americans did in our worst and darkest times. This is, ironically, because of Chinese Communism, which purported to help workers.

No serious person ever believed that silly notion though. Self evidently, academics are not serious people.

What effect giving over half a trillion in unearned money to the Wall Street banking cartel will have, will depend entirely on what they do with it. People look at inflation in the abstract, but concretely, investment professionals at some HUGE banks are getting checks in the mail. They can spend it on any little thing their hearts desire.

They could in fact use it to take advantage of the artificially low exchange rate of the currency I prefer to call the “Mao” to buy up large segments of Chinese industry. Devalued currencies work both ways: they foster exports, but they also make all domestic companies cheaper to buy. The devaluation of our currency will only happen AFTER Wall Street finishes their “Wheel of Fortune” style buying spree.

I wrote a series of pieces on how our system works, and how it should work. You can read it here: http://www.goodnessmovement.com/Page14.h tml