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The Joys of Protectionism + Inflate or Die

without comments

Recently Mexico said they will be launching tariffs some products from the US because the United States canceled a program that allowed Mexican trucks to transfer goods throughout the US

The Mexican government said Monday it would slap tariffs on 90 U.S. industrial and agricultural products, in a trade dispute that underscored the difficulties facing President Barack Obama as he tries to assure business and global allies that he favors free trade.

Mexico said the tariffs were in retaliation for the cancellation of a pilot program allowing Mexican trucks to transport cargo throughout the U.S.

Unions have for years fought to keep Mexican trucks off U.S. highways, despite longstanding agreements by the two countries to eventually allow their passage. Legislation killing the pilot program was included in a $410 billion spending bill Mr. Obama signed last week.

Currency, as a type of good, is also being heavily manipulated, with countries around the globe trying to out-inflate each other to make their exports cheaper to foreign consumers. Even the Swiss have recently intervened.

The Chinese warned the US against printing too much currency. But the US federal government deficit could easily hit 2 trillion Dollars this year, and the Federal Reserve is buying up hundreds of billions of dollars in bonds across the yield curve to try to push down interest rates.

The Federal Reserve ramped up its efforts to resuscitate the sagging economy, saying it would purchase up to $300 billion of long-term U.S. Treasury securities in the next few months and hundreds of billions of dollars more in mortgage-backed securities.

By buying long-term government bonds and mortgage-backed securities, officials hope to push up their prices and bring down their yields, and thereby energize the economy. Interest rates on many corporate bonds and consumer loans are benchmarked to U.S. Treasury debt.

Deflation has begun receding, and if/when inflation appears it may force the Federal Reserve to slow down the U.S. economy again.

Feb CPI rose .4% headline, .1% more than expected and rose .2% core, also .1% more than estimated. The y/o/y gain is .2% up from flat in Jan, the lowest since 1955, led by energy. The core rate is up 1.8% y/o/y. With oil prices bottoming out as are food prices, which I believe is for good in this cycle, inflation #’s are starting to reverse to the upside. The degree of course will determine the Fed’s next conundrum.

Long-term it seems like hyperinflation is a no brainer bet, but in the meantime the house is using your money to bet against you, propping up whatever they can. How far will they take it?

Written by admin

March 18th, 2009 at 4:40 pm

Posted in bubbles

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