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Are we underestimating global cooperation of central banks?

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  • Are we underestimating global cooperation of central banks?

    I think a lot of the doom and gloom scenarios are predicated on the assumed inability of global central banks to cooperate in an efficient manner.

    If global central banks can march the USD and trade imbalances downward in a thoughtful way, we may find a return to significant stability in the global economy and good times ahead .. with only concerns about the environment left in the wake.

    The recent correction in the dollar, 10 year treasuries, and even the price of gold, have left me wondering how much of this is global central bank intervention.

    Yes - the dollar will go down. This I am very sure of ... however:

    a) the EUR may have to inflate in order for this to happen as a soft landing
    b) global inflation will increase, for sure, but so will global economy economy growth
    c) gold may take a huge hit once everyone realises that a fourth currency is not necessary .. that, surprise surprise, the central banks know what they are doing
    d) the best investment will be EAFE equities which do not rely on exporting to the US (at least in the short term, in the long term they'll probably do OK .. especially after they get beaten down)

  • #2
    so far, for the last few years, what has been achieved is cooperative devaluation. the fed pumps, the japanese engage in zero interest rates and quantitative easing, the yuan is managed not to rise too much v the us dollar, and the other asian countries don't want to rise relative to the won.

    the scenario you describe is much like the one recently written up by steven roach. the difficult part, as i see it, is the fiscal maneuvers that will have to go along with the monetary in order to make the process orderly.

    china will have to stimulate more domestic demand, as will japan. the eurozone may have to have serious labor reform -- otherwise their exports will fall through the floor. the us will have to curtail its budgetary deficits in order to keep interest rates from going through the roof.

    i think the best i can conceive of as being realistic is a john mauldin style muddle through, a couple of bad recessions in the next 10 years.


    • #3
      Sorry, noob question: EAFE = European, Australian and Far East?

      Since I am new to all of this and not especially knowledgable, I generally try to stay out of the way and research answers to my own questions - - however I really wanted to make sure I got the answer to this one right, and Google turned up a number of possible answers.



      • #4
        Yes, that's correct.