"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

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Wednesday, March 9, 2011

China reporting Smaller Trade Surplus

This story came down the wire last evening from Bloomberg. What struck me was the fact that this is coming at the same time that we see more stories coming out concerning China's attempt to position the Yuan as a global currency. The combination of both ultimately will translate into less Chinese demand for US Treasuries since there will be fewer US Dollars in China's coffers if the trend continues.

Now combine this with the reports from Zero hedge this morning detailing the change in Pimco's portfolio in regards to US Treasuries and we come back to the same issue that I and others are raising - where is the demand going to come from to absorb all these Treasuries sitting on the Fed's balance sheet once they attempt to begin backing out of QE (asuming that can even be done with crude oil refusing to go down and especially if it were to reach the levels some are predicting it could reach).

Yes, the Primary Dealers can buy them but at the cost of pulling all this liquidity out of the US economy. Does anyone really believe the stock market rally is going to continue with a rising crude oil price and liquidity being sucked out of the economy? How is the real estate market supposed to recover with the resultant surge upward in interest rates? Can US businesses really ramp up hiring at a rate fast enough to absorb the huge number of unemployed plus bring the jobless rate down closer to 5% or 6% anytime soon in a rising interest rate environment? And exactly how does $4.00 and higher gasoline translate into higher economic growth if all the funny money is being withdrawn?

China May Deflect Geithner Pressure by Reporting Smaller February Surplus

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