Today, the FOMC is going to announce how much quantitative easing they are going to do. In other words, they are going to tell you and me how much money they are going to print which effectively will take away the real value of our money. It is something which I can do nothing about and which makes me feel very uneasy.

Inflation coming over the next 10 years

Inflation coming over the next 10 years

It makes me feel uneasy because I know that so many people are going to be impacted by this move to print more dollars in the next 5 years or more. With salaries rarely increasing and governments trying to make their country more competitive by keeping wages low, I feel that the people on the ground are going to suffer from all this quantitative easing and money printing. Already, Singapore’s PM have spoken in TODAY newspaper (3rd Nov 2010) in the article,”We’ll have to watch and see: Prime Minister Lee Hsien Loong in Singapore’s Property Market” about the problems of liquidity that has the potential to create a property bubble or has already done so.

“Our property market has been taking off, which is causing some consternation,” Mr Lee told Reuters in an interview. “We have had a series of measures to squelch the property market but liquidity is awash, sloshing around the whole region.”

What he is saying is that there is so much money pouring into Asia and I suspect that a high percentage of that money is coming from all the easy money that is available in the West. With futher quantitative easing, I think that the future will be characterised by high inflation rates and prices of commodities going through the roof. With the high prices and coupled with salaries not increasing considerably, I see that a lot of people are not going to like whats coming in the near future.

Nadeem Walayat, Editor at The Market Oracle stated that the quantitative easing  shouldn’t be news for anyone:

“As the Fed is expected to print money to inflate the U.S. Economy by means of monetizing government debt , and thereby driving asset prices such as stocks higher.”Walayat also suggests that once the faucet is turned on, there is hardly a way back: “Whether QE2 works or does not work, does not matter, what matters is

[…] that once QE starts it does not stop whilst large government budget deficits exist, therefore we are looking at a decade of QE in the U.S. and much of the rest of the world. That is a decade of real-terms inflation expectations that is waiting to be priced into the asset markets!” (Excerpt taken from FXStreet.com)

I am in agreement with Walayat and I think that inflation have not been priced in yet. I feel that inflation will rear its ugly head once we see the stock market hit its red bull button. With stock prices going up, companies will be more driven to expand and that would require resources which with increased demand would cause the prices to escalate. Also, with stock prices up, people become more confident to spend as they feel the wealth effect of rising stock prices. All this will contribute to higher prices from property to oil to food. It is just a matter of time actually.

In the meantime, it is best to equip ourselves with as much financial knowledge as possible so that we can prepare for the coming inflationary environment. From there, one can take more informed decisions and hopefully weather through any unforeseen occurences.

To your Success!

~Ardy~

Singapore Forex Traders’ Blog