Wednesday, November 3, 2010

Answer: Screwflation

Question: What do bankers call price inflation caused by commodity speculation?

Seriously.  I'm not making this up.  I heard it from a banker I work with at Credit Suisse.

Now that the next round of quantitative easing has arrived, expect all of the money the banks get from the Fed to be poured into the commodity markets.  The size of QE2 is insufficient by itself to address the coming debt write-downs.  And, regardless of size, QE2 would not have enticed businesses and individuals to take on more debt.  That leaves financial speculators as the only people out there willing to borrow. 

Although the amount of money manufactured by QE2 seems significant, it will have no velocity and will not cause inflation directly.  What we'll be seeing is screwflation.