Asset Bubble?

The Federal Reserve, said it will buy $600 billion of U.S. government bonds over the next eight months to drive down interest rates and encourage more borrowing, spending and investment by homeowners, consumers and businesses.



Another bid to reduce unemployment, avert deflation and encourage growth by Bernanke.


A look at the Federal Reserve Balance Sheet is worrying. In 2008 the figure went up from around 900 billion to almost 2.25 trillion within a short span of a few months before end of 2008. The action managed to stabilized the financial system and Dow managed to move from its low of 6,457 in 2009 to Thursday close of 11,434, but unemployment remains high at around 9.6%, consumption remains low and housing crash continues.

The next wave of currency printing will definitely weaken the US dollar further. Commodity price will go up, the price of everything (food, energy, services, material....) in US will shoot up, inflation will set in. But I think inflation is what the Fed desperately wanted in order to solve the real estate problems.

An important question here is, what will happen if/when this dollar liquidity started to flow to emerging markets, will it trickle a global currency war?

Recently China, India and Australia have increased their respective interest rates higher to control inflation. Brazil and Thailand have imposed taxes on capital inflow to prevent asset bubble forming. Japanese authority has started to intervene in the currency markets to prevent the yen from appreciating too much. I am not too optimistic about all these development.

A little bit on Malaysian Society

This is an interesting article from the blog of a young Malaysian, John Lee. Please click Infernal Ramblings.