The fruits of QE2
Given the chart above, you might have expected the dollar to have depreciated against foreign currencies more than it has. Instead, many countries have imported inflation. Russ Winter says “we can calculate that each new $100 billion of Treasury purchased will add about 5 percent to the commodity index and $7 to oil.” Ouch!
Final point: the Fed has been buying 70% of new issues of Treasury debt. What will happen to (a) interest rates, (b) GDP growth, and (c) commodity inflation when QE2 stops in June?
April 11th, 2011 at 5:54 am
Wow! Just wow.
I would not have expected that kind of correlation.
I do not see how commodities can remain in lockstep indefinitely unless wages start escalating. At some point, high prices are the cure for high prices as stuff becomes unaffordable.
So what happens to the chart then? Fed continues to sop up the debt but commodities run up against slackening demand?
Dunno. We are sailing into uncharted waters. Lots of variables to consider. It is getting too complex for my feeble mind to comprehend.