Blanchflower: G20 Meeting a 'Complete Waste of Time'

Includes: UDN, UUP
by: Edward Harrison

Good interview on Bloomberg with David Blanchflower (If you find yourself unable to play the video below, click here). He thinks the US is going to manipulate its exchange rate by printing a bunch of dollars, leading to currency revulsion and selling of dollars. Meanwhile, everyone else is fixated on exporting their way to growth. Doesn’t sound like the G-20 accomplished much despite what the pundits may say.

I should point two things out that are a direct result of the failure of the G-20:

  1. Expected U.S. inflation is rising a lot. Ben Bernanke wants this and he is getting it. The Treasury sold Inflation-protected bonds (TIPS) with a negative yield for the first time yesterday. That tells you that people expect inflation and are willing to pay the Treasury 55 basis points to protect themselves. Crazy.
  2. Mexico is now talking about the currency war too. Guillermo Ortiz, Mexico’s former central bank governor says “We shouldn’t be the ones left out" in looking for ways to decrease exchange rate overvaluation. Translation: we too would like some currency controls. (See more detail here)

Meanwhile, stocks are cruising along because the risk-on trade is gathering steam again. Again, I don’t think the Fed is as interested in consumer price inflation. They want inflation, yes. But it’s really asset price inflation that they want the most.

And they’re getting it.

Of course, we still have the disaster at the State level, which Nouriel Roubini has come out saying he sees as a problem like Meredith Whitney. He says the shoe will drop in 2011. And is it on to the next round of stimulus, then? Here’s what that would look like.