“Bernanke super-put” is the excellent phrase Ambrose Evans-Pritchard uses to describe the latest round of QE.
The rest of the world, he notes, is furious about dollar debasement and the incoming flood of hot money:
Li Deshui from Beijing’s Economic Commission said a string of Asian states share China’s “deep bitterness” over dollar debasement, and are examining ways of teaming up to insulate themselves from the tsunami of US liquidity. Thailand said its central bank is already in talks with neighbours to devise a joint protection policy.
Brazil’s central bank chief Henrique Mereilles said the US move had created “excessive dollar liquidity which we are absorbing,” forcing his country to restrict inflows. Mexico’s finance minister warned of “more bubbles.”
These countries cannot easily shield themselves from the inflationary effect of QE2 by raising interest rates since this leads to further “carry trade” inflows in search of yield. They are being forced to eye capital controls, with ominous implications for the interwoven global system.
In London and Frankfurt the verdict was just as harsh. “In our view, this is one of the greatest policy mistakes in the Fed’s history,” said Toby Nangle from Baring Asset Management.