Schiff on China’s Decision
And here’s a look at what the rates on the long bond have done over the last 90 days. I’d guess that the market is seeing the China situation as it is. China will likely no longer import US inflation onto the Chinese people. The Chinese people are frugal with a personal savings rate that dwarfs ours. As such, massive price inflation, particularly on foods will just not be tolerated.
With the RNB floating upward (to reduce the internal inflation in China), the US will no longer be able to cross subsidize our own inflation onto anyone else. This means that 2011 will likely be the year of price inflation for us–the unavoidable consequence of the massive monetary inflation we have already backed into our own monetary cake.
Long Bond Rates
US Monetary Base (MZM from Federal Reserve St. Louis) — rising money supply is the definition of inflation. The MZM supply going from roughly $8.1T to $9.8T in 3 years is about a 21% inflation.
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