The Fed does more.

Link: <shakes head>

The Fed has expanded its asset purchasing program by buying $45 billion of treasury securities per month beginning in January. That’s in addition to the $40 billion of mortgage securities (also monthly). To emphasize: that’s $85 billion per month. Or $1 trillion per year. Which is the proximity of the annual fiscal deficit of the United States as a whole.

I mean: awe.

Experts forecast no sign of inflation.

I’m saying that: once the money is out there, it’s out there. And while I still think what I thought two weeks ago, the longer term consideration needs to drop the assumption that the US dollar will continue as the global currency of reserve.  The more disregard the Fed has for the international implications of its domestic expansion programs, the more likely it is that investors and businesses will seek to redenominate their foreign operations in alternative currency.

The obvious contender is the renminbi/yuan. If China frees up its currency and capital controls (unlikely, unless they really want revenge), the US will no longer be able to rely on global demand to sop up its excess liquidity. If anything, the opposite. And then the American Dollar will sit in massive bulk, freshly contained by American shores. And then we’ll see some “inflation signs“.

Hopefully, China’s vested interest in the dollar as a creditor nation will give her pause.

At what point does Ben Bernanke stop and say “you know – we’ve tried this a LOT and it clearly isn’t working…”? And then there can be the “well obviously – you’re not a closed economy, you fool” response.