This is the result of credit inflation. The Fed has started to pump currency inflation, the carry trade is now credit inflation. Karl tends to go from pillar to post in his views.
Inflation is the inevitable result of low interest rates and the flight to quality. The problem is the quality of the Ts or dollars is D cause we cannot collect the taxes to pay for outstanding Ts.
To stop the carry trade, you need to stop the dollar decline. The Fed put the cart before the horse and should have dumped the dollar before this nonsense and stabilize where we have a balance of payments and trade. The problem is all these currency relationships that are fixed by agreements which are frankly idiocy.
The fed may do exactly what is wrong and defend the dollar which will make access to the dollar credit very expensive. Either way you kill off US business development, either by expensive credit, or crowding out by foreign competition.
Vive la buck.
QUOTE(cwd @ Mar 25 2008, 03:03 PM)
Denninger has some interesting comments on Ben's ZIRP. If I remember correctly , that is what we had in the thirties.
March 25 (Bloomberg) -- The dollar fell against the euro as a rally in Asian stocks encouraged investors to buy higher- yielding assets with loans in the U.S. currency."
Congratulations Ben, we just became a funding currency for carry trades, exactly like Japan.
I hope - rather, I pray - that the author of this article is wrong.
Because if he is not, we are on the precipice of a collapse in the Dollar.
See, The Carry is a particularly pernicious form of abusive trading in the world, in that the money borrowed doesn't go to any productive purpose in the nation where it is borrowed.
Instead, it is immediately removed and sent "somewhere else."
This creates incredible distortions in the nation who is subject to the "funding" dilemma, in that these "loans" are in fact a form of zombie finance. There is no productive purpose to the loan in the nation of origin, a tremendous distortion is put into the FX markets, and further instability is placed into the funding economy.
http://market-ticker.denninger.net/