Larry Meyer echoes Liu Junluo

Liu Junluo claimed that the U.S. would use monetary policy to create bubbles in Asia. Larry Meyer says, indirectly, that may be the case, when he states:
"Commodity prices will go up but it's driven because Asia and China have adopted US monetary policy which is crazy for them. Absolutely crazy. And we can't do anything about that. That's no reason why we should keep interest rates higher, to benefit China and Asia, and prevent bubbles there, they have to do it themselves. Look in the mirror if you want to know whose problem this is."
Video is here:Watch As David Einhorn Makes A Mockery Of One-Man Fed "Expert Network" Larry Meyer

A fact of a currency peg is that the nation on the peg is importing the monetary policy of a foreign country. Most countries are small and the United States will feel little affect from their policies. However, almost much of Asia is using a peg or dirty float of their currency. The United States cannot control their monetary policy politically, i.e. the U.S. can only ask them to change policy. However, if the U.S. wants to run an insane monetary policy, it can engage in a game of chicken with countries importing the policy.

Where I disagree with ZeroHedge and other American critics of the Federal Reserve's policy, and where I line up with the foreign position, is that this policy won't hurt the U.S. as much as it will hurt foreign countries, and most of the critics are wrong when thinking that inflation, rather than deflation, is the threat.

The U.S. is unable to generate domestic inflation because money/credit created in the United States is going into Asia and other emerging markets. Federal Reserve easing in 2009 and 2010 has helped lift commodity and asset prices, but there's very little increase in other prices, especially wages. However, even the rise in commodities and U.S. assets is very small compared to the booms seen in emerging markets such as Indonesia, Thailand, Turkey, China and Malaysia (not all of these countries have currency pegs, but they are all benefiting from the trend). The Federal Reserve cannot generate inflation at home until foreign governments allow their currencies to appreciate and cause U.S. dollars to return home or never leave in the first place.

Here's the issue. For many countries, it may be too late, particularly in the case of China. They should have started moving away from exports years ago and let their currency appreciate more rapidly, and now they are caught in a bind. If they do not allow the currency to appreciate, inflation may quickly surge into the double digits. Once that happens, they must take drastic action, but even if they act to stop the inflation, it may be too late to prevent a deflationary bust in the real estate market (especially in China) or other asset markets.

Federal Reserve policy is likely to create a crack-up inflationary boom that leads to another Asian Crisis and the actions taken by Asian governments and central banks will also lead to deflation. (The exception will be if the U.S. manages to create hyperinflation, in which case probably every currency in the world will collapse, along with the global economy, but I don't think this is probable.) While the Federal Reserve is the latest actor, this is not a solo dance. Central banks around the world have made years upon years of policy errors. (Remember that if the Fed fails to get the U.S. economy moving, the Asian exporting nations will also be in deep trouble. What we are witnessing is a breakdown in cooperation due to differences of opinion.) The crisis in 2008 was the system releasing pressure, but politicians and bankers swiftly moved to shut the valve and restore pressure to the system. The Federal Reserve is now jacking up the pressure and when the valve blows this time, it may not be able to be shut. And the steam is going to scorch Europe and Asia.

From a political angle, the Federal Reserve policy also serves to accelerate the move away from the U.S. dollar as reserve currency, to the extent that it conducts monetary policy with a greater focus on the domestic economy.

The countries of the world need to find a way to cooperate and share the pain of global re-balancing, but every country is choosing the policy that serves its own needs, which is the path a follower of socionomics and the social mood would expect them to take.

Finally, here's the second part of the most recent Jim Rickards interview on King World News. He discusses gold and the current Fed policy as a means to shaking off the Chinese peg.

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