Maxime Tessier, head of foreign exchange in Montreal at Caisse de Depot et Placement du Quebec -- Canada’s largest pension fund, with C$120.1 billion ($94.3 billion) in assets -- said a primary catalyst for a slide in the dollar will be an escalating threat of rising prices sparked by Fed purchases of Treasuries. Faster inflation hurts the value of a currency as it erodes the value of future returns in that denomination.
Fed Chairman Ben S. Bernanke said Dec. 1 that the central bank may buy longer-term U.S. debt to keep yields and interest rates down. On March 6, Federal Reserve Bank of New York President William Dudley said policy makers have decided for now not to expand the range of securities they purchase.
‘Aggressive Reflation’
The Fed lowered its target rate for overnight loans to zero to 0.25 percent and more than doubled the assets on its balance sheet to $1.9 trillion during the past year, expanding bank reserves and beginning lending programs to bolster the financial system. President Barack Obama is seeking Congressional approval for a $3.55 trillion budget for the year starting in October that would increase spending by 32 percent to kick start the economy.
“The Fed has a policy of very, very aggressive re- flation,” Tessier said. “A weaker dollar goes in the right direction, from a U.S. standpoint, as it stimulates economic growth. The trading
Fed Chairman Ben S. Bernanke said Dec. 1 that the central bank may buy longer-term U.S. debt to keep yields and interest rates down. On March 6, Federal Reserve Bank of New York President William Dudley said policy makers have decided for now not to expand the range of securities they purchase.
‘Aggressive Reflation’
The Fed lowered its target rate for overnight loans to zero to 0.25 percent and more than doubled the assets on its balance sheet to $1.9 trillion during the past year, expanding bank reserves and beginning lending programs to bolster the financial system. President Barack Obama is seeking Congressional approval for a $3.55 trillion budget for the year starting in October that would increase spending by 32 percent to kick start the economy.
“The Fed has a policy of very, very aggressive re- flation,” Tessier said. “A weaker dollar goes in the right direction, from a U.S. standpoint, as it stimulates economic growth. The trading
strategy over 2009 is to gradually build up a short U.S. dollar position.”
(Emphasis mine)
Translation: Just in case not enough countries buy our treasuries we will buy our own with money we print.
A 10 year old could see this is a bad idea. Why do Kenyensian economists think this will work? What if they actually succeed in re-inflating? Will assets prices go through the roof if the credit market starts functioning? Or will banks hoard cash, too fearful to make risky loans as they try to improve their balance sheet ratios?
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