QUANTITATIVE RELAXATION TO CAUSE CONSUMER PRICE BOOM Dire Straits

The U.S. President-Elect gave another warning last week trying to expedite the adoption of his rescue plan for the U.S. economy. Barack Obama said "an economic situation that is dire" required "immediate and bold action" in the form of unprecedented tax cuts and federal programs. Barack Obama promised to create 1 million new jobs during his election campaign. Economic realities forced him to raise the stakes of the game with the constituents. Just a few days ago, his economic rescue plan advanced to promises of 2 and 3 million jobs.

After the release of the unemployment data on Friday, the number of promised new jobs rose from 4 million to 4.1 million in just a few hours, according to Bloomberg. At this pace, the U.S. economy will soon face a severe crisis on the job market and Romanians will have to move from Spain and Italy to the United States.

The CES Birth/Death model of the Bureau of Labor Statistics "improved" by 904,000 jobs the status of unemployment in the U.S. economy in 2008. Without the 72,000 newly hired employees "created" by this model, the number of the unemployed in the U.S. would have increased by nearly 600,000 in December and the dollar would not have had any grounds to appreciate against the euro. In December 2007, the model created only 70,000 jobs. Under these circumstances, the U.S. Government is acting just like the major international banks: instead of putting the "assets" on the market, they prefer to conceal everything behind "State statistics."

The fiscal incentive scheme proposed by President-Elect Obama, which includes massive tax cuts, as well as increased spending, does not seem to frighten, at least for the time being, any investors in U.S. Treasuries. Kurt Karl, the Chief Economist of the U.S. division of Swiss Re, believes that the U.S. central bank will have to continue the quantitative relaxation programme.

In Britain too, this term, heavily loaded with "political correctness," has been used increasingly often in public speech, although it is in fact an alternate wording for opening wide the monetary faucet. Unfortunately, history provides not even one example of sustainable economic growth achieved by printing more money. Gordon Brown should know that well, since he is a doctor of history.

Nevertheless, The Telegraph wrote that the Government was preparing to give up on a 165 year-old law forcing the Bank of England to publish their financial status on a weekly basis specifically in order to facilitate quantitative relaxation. Are there any traces of transparency and responsibility left in the central banks? "Remove that control and there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses," said Lord James of Blackheath during a debate on that act in the House of Lords.

Peter Schiff, the CEO of Euro Pacific Capital, believes that the very Federal Reserve promise to buy bonds issued by the U.S. Treasury without limitations has caused the spectacular surge this market has been experiencing for the past few months. Schiff believes that the bonds market is now dominated by speculators, who are eager to get rid of their bonds as soon as the Fed starts buying massively. The Fed will have to accelerate their buying, or the price of the bonds will drop, considering the massive issuances this year. And if the price collapses, the yield collapses, and so will the plans of the new U.S. Administration.

A recent statement by the U.S. Treasury Secretary Hank Paulson blaming China and other emergent markets for the low interest rates in the U.S. sparked indignation in Beijing. An editorial published in the online edition of the People"s Daily responded with a quote from Confucius: "On seeing a man without virtue, examine yourself to be sure you do not have the same defects." Timothy Geithner, the U.S. Treasury Secretary in the Obama Cabinet, will have to urgently give up on this point of view, which is not even grounded, since the United States is not in a position to upset their main creditor.

The EuroZone countries are not in the "enviable" position of the United States. The European Central Bank cannot print euros, at least for the time being, in order to buy the bonds issued by the Member States directly. Fiscal support will trigger a competition for funds at EU level. In the meantime, the Czech Presidency of the EU has expressed doubt and concern regarding the 200 billion EUR economic stimulus plan.

"History teaches that abrupt political decisions can be of more harm than use. I have no reason to believe it will be different this time," said Finance Minister Miroslav Kalousek quoted by Financial Times. He further said that, although the Czech finances were in a good shape, the nightmare of refinancing the public debt was giving him sleepless nights. The fiscal stimulus plan promoted by the EU can severely restrict the options to refinance debts for certain Members, thus causing further uncertainty on the market, the Czech Finance Minister added.

The famous rock band Dire Straits (so called due to the financial condition in which the four members were living in at the time, according to Wikipedia), managed to find a way out of dire straits partially due to the success of their song "Money for Nothing." The current governments don"t have such option. "Money for nothing," printed as a ticket out of the crisis, will have inestimable social and economic costs.