weimar - not what you thought......., page-18

Fantastic thread,
Mike, pug, et al. Heres my take on it. We dont necessarily need to see QE occurring in Australia to see high inflation here, but it helps!

If local financing requirements exceed the capacity of the economy to finance it (and therefore is financed by lending from overseas) AND these debts continue to get rolled over ad infinitum, then the result is the same - rising prices. Its already happening, and has been for as long as Ive been watching it (15 years).

In the above scenario, the inflation (rising prices on our shores) is being created at the debt source overseas and then exported to our shores.
Now, in THEORY all that debt eventually gets paid off, as the loaned amount finally returns to its origins (the originating central bank) and nearly all of it is thrown into the furnace so-to-speak with the small remainder staying in the economy and adding a bit of inflation (2 - 3%).

But, as we all know, that hasnt been happening for a long time. Too much debt kept getting rolled over, never getting paid off, and therefore the loaned money remained as obligations in the form of houses, credit cards, etc. These assets arent money when their is debt behind them, but unfortunately - collectively - we began treating them as such.

But then - finally - 25-odd years after Reagan & Thatcher facilitated the latest shebang - demands for debt repayment increased last year in a big way, and is seen in the rocketing demand for the global currency - US dollars - to repay obligations.

So, now we are at this point, how will the Australian gov't react if/when the overseas credit gets more expensive and/or existing loans dont get rolled over anymore? Well, we have a partial answer with the creation of Rudd-bank, designed to facilitate commercial lending at the low rates our govt enjoys. But for how long can that go on? I see today that US long-term bond yields have started going up pretty fast.

I wonder what australian govt bond rates are doing - Ive never checked. Perhaps that is where we need to look for clues, because if those rates start accelerating, I reckon Glenn Stevens will be borrowing the book Bernanke is reading now (he still has his library card from those days at the US Fed) & try intervening in the Aussie govt bond market to lower prices.

Rambling brain-dump over, I had better do some paid work...