Chris Martenson has an important piece on Quantitative Easing that contrasts QE1 with QE2. In a nutshell, Mr. Martenson states that the first QE1 financed the banking system while QE2 is financing government spending for the next eight months. This dovetails nicely with my recent Bernanke’s Cowardice has Sealed our Fate.
QE2 is a major change in strategy and something that Bernanke vowed he would not do.
The manner in which the Fed and the US is now viewed by the rest of the world has taken a big hit and according to Martenson may have reached a dangerous tipping point which he goes on to explain in the excerpted section below. The borrowing needs of the world are staggering as shown in the chart below. Is everyone broke? It certainly appears so.
Martenson explains why the alienation of much of the world is so important:
Why this is important
Okay, so the US’s international friends are a little upset with the US for deciding to print up the better part of a trillion dollars out of thin air. What’s the big deal?
The big deal here is that the OECD countries have a monster borrowing bill set for next year. There needs to be some level of cooperation and fair play is going to be required in order to pull this off:
$10.2 Trillion in Global Borrowing
Next year, fifteen major developed-country governments, including the U.S., Japan, the U.K., Spain and Greece, will have to raise some $10.2 trillion to repay maturing bonds and finance their budget deficits, according to estimates from the International Monetary Fund. That’s up 7% from this year, and equals 27% of their combined annual economic output.
Just ponder those numbers for a bit. The average borrowing across 15 major developed countries is 27 percent of GDP(!) Ask yourself how dependent the entire OECD world is on a smoothly operating financial system in order to merely function next year.
Having the perception out there that the US is being run by clueless (or ‘abusive’) individuals is not going to help the situation much.
In order for the requisite levels of borrowing to be pulled off in a smooth and uninterrupted fashion, there can’t be any hits to confidence and no major disruptions can happen. Everything has to run with clockwork precision. It is against this backdrop that I view the profoundly undiplomatic statements directed at the US as quite a bit more serious than some other observers.
