The Daily Trading Report

Check out a piece in MoneyNews by Michael Carr entitled Fed Policy is Causing Inflation and Hurting the US Dollar. Here is an excerpt from that article:

Added together, there is about $20 trillion in cash and promised cash in the U.S. economy. The total production of the country, as measured by GDP, is about $14 trillion. More money is available in the economy than there is stuff to spend it on. The result is that those with money will be willing to pay more for the goods and services they want to buy. This is what economists call inflation.

The late, Milton Friedman in his classic book Money Mischief gives direct insight into how Obama’s reckless monetary policies will cause hyperinflation. Everything Obama, the Federal Reserve, and Congress are doing was predicted in startling detail almost two decades ago by Freidman.

Though he passed away in 2006, in his prophetic book, Friedman showed how, facing massive deficits, the U.S. government would dramatically increase the money supply; why foreign countries would stop buying US debt; how the Fed would start buying our Treasury bills; and why this would call cause massive inflation.

He even predicted that US officials would claim inflation was no problem at all. All of this is now coming to pass! The Obama administration is embracing massive inflationary deficit spending. In just 100 days, Barrack Obama has more than doubled the U.S. money supply . . . committed the government to at least $7 trillion in new spending . . . and warned the American people to expect trillion-dollar deficits for the foreseeable future. While the media has been falling over itself to praise Obama’s “bold initiatives,” the question no one has been asking is, “Where is all of this money coming from and what is the price we will ultimately pay for this?”

Decades ago, Milton Friedman answered these questions clearly and precisely in his insightful — and very topical book, Money Mischief: Episodes in Monetary History. In Money Mischief, Friedman even warned that the coming inflation could “destroy” the US. Here’s what he wrote: “Inflation is a disease, a dangerous and sometimes fatal disease that, if not checked in time, can destroy a society.” (Money Mischief, Page 191).

We believe that Obama’s massive deficit spending will doom the dollar and the US economy. If you want to find out what is really happening to the US economy get a copy of Milton Friedman’s book. Its insights are so relevant and shocking — it reads like it was just published for our times! Milton Friedman isn’t the only one worrying about the US deficits and the dollar……the US creditors seem very concerned:

June 2 (Bloomberg) — China’s former central bank adviser Yu Yongding will meet Treasury Secretary Timothy Geithner today and tell him the U.S. shouldn’t be complacent about China continuing to buy Treasuries. “I wish to tell the U.S. government: ‘Don’t be complacent and think there isn’t any alternative for China to buy your bills and bonds’,” Yu said in an interview yesterday. “The euro is an alternative. And there are lots of raw materials we can still buy.” Yu is scheduled to meet Geithner at the Grand Hyatt Hotel in Beijing today. China is the biggest foreign holder of U.S. Treasuries with $768 billion at the end of the first quarter. Premier Wen Jiabao in March called for the U.S. “to guarantee the safety of China’s assets” and central bank Governor Zhou Xiaochuan has proposed a new global currency to reduce reliance on the dollar.

China is concerned that the U.S.’s spending and planned record fiscal deficit will eventually lead to inflation and a loss of confidence in the dollar, undermining the value of China’s Treasury holdings, Yu said. The deficit is projected to reach $1.75 trillion in the year ending Sept. 30 from last year’s $455 billion shortfall, according to the Congressional Budget Office.

The U.S. should take China’s interests into consideration “so that your own interest can be protected,” Yu said. “You should not try to inflate away your debt burden.” China could still diversify some of its Treasury holdings into euros or commodities, Yu added. “Yes, some people say the euro is very weak,” Yu said. “Okay, weak is good, we’ll buy very cheap.” The best outcome for China would still be to negotiate with the U.S. and reach agreement on its Treasury holdings, Yu said. “The borrower should keep their promises,” he added.

Well we think that there is no hiding Yu’s thoughts and intentions…….we will follow on the back of these intentions (short USDs & US treasuries, and long commodities and commodity equities), the trends are clear and make sense:

We are long HAP, DBC, UDN and TBT…….we have a feeling that we will be so for many months!

§ Leave a Reply