Courtesy of Tyler Durden
Hugh Hendry proposes a very simple thought experiment to all those (apparently the Fed) who believe that QE2 can end: who will drive global growth if the suddenly marginal economy, that would be the US for some ungodly reason, contracts, which it already is, and will do so even more once rates start rising. Sorry, but unlike last time China is not here to pick up the slack. And it appears that China will not be stepping in to fill the growth void, read inflation, (read Jasmine revolution) which can only lead to more social unrest.
The key observation from Hendry:
The ramifications of China’s actions during the crisis ensured the development of a nascent but very real over-investment/property bubble. The Chinese are at the same time nursing an unprecedented income gap between the haves and the have-nots. QE2 undoubtedly exacerbates these social disparities even further. The eerie similarities between the Great Recession and the depression of the 1920 shave to some extent dissipated, due in large part to the willingness of Asian creditors to stimulate their domestic economies and bridge the gap left in the wake of severe economic contraction in the West. Recently, however, the spectre of domestic inflation has prompted the East to remove the punch bowl. Now the question to ask has to be whether or not China would be prepared to assume the role of hero all over again if global GDP runs out of steam. The Fed’s antagonistic quantitative easing program may have sapped its willingness to help out “team world”, in which case the only remedy for a prospective slowdown will be further QE and a Western commitment for rates to remain lower for longer.
Full report:
h/t Nictrades
