1. I guess the markets are only pricing in the end of the Fed bond buying.
2. I am just amazed after so much printing the effect on inflation in US was virtually non existent.
3. Is it true the US exports the inflation across the world (due to everything being priced in US$) thereby minimizing the impact on its own soil? Is the rest of the world subsidizing US?
4. Now that BRIC countries have their own international reserve bank and China is agreeing to price oil with Russia in Yuan does that mean those countries are trying to limit US$ as a reserve currency?
5. Is that a good thing? Don't know...
1. The US bond curve is being weighed down by increasingly easy monetary conditions in the EZ that are seeing negative yields in a range of countries over two year tenor. This is also the case with Japanese liquidity looking for a home that generates something other than outright negative real returns. There are other reasons that are influential too. Perhaps another post.
The weighing down of the curve is contrary to the actions that would most likely be prevailing if the Fed was tightening as they are expected to do and US domestic conditions are on the trajectory they have currently found themselves on, without external monetary influences.
The end of bond buying by the Fed, in isolation, is more likely a catalyst for re-assessment of the weak outlook for US equities than it is for spurring another rally.
2. It is clearly present in asset inflation which is also harmful to an economy if not well handled. The circumstances of this print were also very different to that for other debt monetization in history that did lead to high inflation on consumption goods. Oils ain't oils. Prints ain't prints.
3. To the extent that tradeables are experiencing high inflation on US soil, inflation can be exported elsewhere. This is a normal activity.
The rest of the world actually subsidizes the US in financial terms due to the centrality of the USD. However, the US has a price to pay for this exorbitant privilege.
4. There is a move on to break the link between oil and USD by trading it in currencies other than USD. This is a key connection to the USD that gave it reserve status post the dissolution of the convertibility to gold under Nixon. However, the specifics of the situation between Russia and China in relation to their long term energy contract are such that the direct impact on the USD is negligible. It just cuts out double FX transitions that hold USD for less than a microsecond, in effect.
5. It would increase US borrowing costs and may reduce the borrowing costs of other nations. There are many other considerations. Nonetheless, the currency hub has moved from Sterling to USD in the last century. The Euro was founded partly to be a balance against USD and Yuan is emerging as a major currency in the future. Nothing terrible has occurred in the FX markets (on a global basis) - yet.