To listen to the media it appears that Quantitative Easing (QE) is a thing of the past.
According to Jonas Elmerraji that’s not the case at all.
The Fed fears deflation. Turns out the forward inflation is only 18 basis points above the level that started Q1, QE2, and Operation Twist. Forward inflation has not fallen below 2.2% since Post-2008.
When the Fed fears deflation they give the economy another round of QE. Next QE program could start in 2015, perhaps earlier. The Fed will start talking about it before implementing it. Talk is cheap. Another QE program is expensive. Previous QE’s have not boosted the inflation rate as much as the Fed had hoped, nor as quickly.
What’s the implication for your business?
What’s the message in this? Watch for inflation rate to fall below 2.2%. Then step back and think about businesses that will benefit from another round of QE. How can your business offer more to attract customers from companies/organizations/governmental agencies? What can you implement to get more of that business.
Next how will QE affect your business. Which vendors will it benefit that you need to leverage on price? Which vendors will be adversely affected? What’s your plan? Would another round of QE help or hurt your prices? If it will hurt what can you offer as inducement to maintain your prices and margins?
What’s the implication to you personally?
QE always increase some prices and decreases others. Historically it seems to increase prices on the basics we all buy. Big ticket items typically don’t increase as much. Likewise, QE has implications for your personal investments. Spend few minutes evaluating your investments to see which will benefit. Be sure the benefits of selling assets will more than offset the tax consequences.
QE isn’t just a Fed program. It has important implications for your company and for your personal finances. Histrorically we know that inflation dropping below 2.2% historically has triggered another round of QE (regardless of what the government calls it.)
Over last few years the BRIC’s nations (Brazil, Russia, India and China) have been working together in various ways to offset the influence of the US. Brazil is experiencing financial difficulties so most of effort is falling on Russia and China.
Over last 3-4 years both Russia and China have greatly increased their stockpiles of gold to strengthen their currencies to offset the US Dollar. Additionally the BRIC nations now freely trade with each other in their own currencies, cutting the US Dollar out of those transactions. What’s the big deal? In the past all international transactions had to be converted to US Dollars. Think of the conversion as a credit card charge. Every time country converted to US Dollars the US got a percentage.
Earlier this year China and Russia jointly announced Russia had agreed to provide China with massive amounts of Oil and Gas. Part of the deal is to build a pipeline across Russian and through Iran to deliver gas and oil to a port facility.
Russia and China have just announced a joint venture to build a huge port facility in Russia, but just 18 miles from border with China, and close to North Korea. This port will rival Immingham in Great Britain and Le Havre in France. It will provide the most extensive and modern port facilities in that part of the world and will have economic impact on other major ports throughout the world, including West Coast ports in the US, Houston, and even East Coast ports.
Europe is trying to lessen their dependence on oil and gas from Russia. Slow decisions by US in allowing exports of natural gas hurt Europe’s efforts to wean themselves from Russia.
World is moving forward on hydrogenics as method to store electricity making solar powered generation more reliable by converting electricity to hydrogen. That would give Europe (and many other parts of the world) a reliable supply of electricity produced in their own countries. Russia of course is aware of all of this and is planning ahead, knowing that China is still going to need massive amounts of gas and oil, regardless of China’s own efforts in hydrogenics..
Bottom line, world is rapidly becoming less dependent on the US. That will significantly curtail the world’s need on the US, to our economic detriment.
Is there a silver lining? There always is…IF…a country takes full advantage of it with technology breakthroughs. For that to happen a country has to have a government working with companies advancing new technologies. So far US government seems to be throwing up roadblocks.
“Vigilance is the price our citizens must pay for having the most free and independent government on earth. We must be aware at all times of our liberties and guard them zealously. They’re our most precious possession, our richest heritage, the one inheritance that we can pass along to our children in full confidence and pride.”
This is a concept that is getting lost in America. Each of us needs to remind others that “freedom isn’t free.” We are only free as long as we hold politicians, people we meet, and ourselves accountable. One of the best ways to encourage others to be accountable is by the example we set each day.
Freedom isn’t achieved by taking from one person and giving to another. Freedom is achieved by creating opportunities for people to improve their lot. That also means people must take accountability for improving their lot in life. No one is “owed” anything in life.