QE II Is Monetization Of Debt And That’s Inflationary

The well announced US Federal Reserve’s QE 2 monetizes sovereign debt which has in the past led to terrible commodity inflation. One can take a look at the chart of food commodities, FUD, to see that the these are only now beginning to rise. Just think how high they will rise when the professional investor and institutional investor pile in.

The average person in the heavily indebted developed nations such as Ireland, the UK, the United States and Japan, will be at the epicenter of suffering, compared to the less indebted emerging country like Chile or Peru or Thailand.

And to make it worse, many of America’s small companies are poorly capitalized; these Russell 2000, IWM, $RUT, companies are highly dependent upon companies like American Express, AXP, and Nelnet, NNI, and others in the financial sector for financing to meet payroll, to buy inventory and cut accounts payable checks.

Now the 30:10 US Sovereign Debt Yield Curve, $TYX:$TNX is rising. This was once a good thing for investors; but since October 7, 2010, the rising sovereign debt yield curve, is making it more expensive for corporations to borrow and is punishing terribly those ivested in the longer out corporate debt like BLV.

Those invested in junk bonds, JNK, have been helped by the announcement of QE 2, as it implies liquidity, well temporary liquidity, and liquidity was abundant this week with the spigot of yen carry trade investing still supporting stocks, ACWI.

For now, the European Financial Institutions, EUFN, are on life support from the ECB. Investors are well aware of the dependency of Portugal, Italy, Ireland, Greece and Spain banks upon the seigniorage grace of Mr. Trichet.


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