[achiever]

The Bank of England added funds in order to increase the Quatitative Easing program today and the ECB kept its base rate at 1% with no sign of inflationary hyper-vigilance.

In trying to make sense of the ECB and Bank of England actions today, it is worthwhile to keep in mind a comment by Carl Weinberg at HFE:
"Seen from the perspective of the world economy, the elephant that will remain in the room no matter how much anyone tries to talk about recovery from the current massive downturn is the collapse of world trade. The latest IMF data show that the value of world exports in April was 32% below year-ago levels and 36% off the peak of $ 1.5 trillion in July 2008. Adjusted for price changes, world export volumes are 18% off year-ago levels and 21% below their peaks. We have never experience anyting like this in our lifetimes. To be blunt, any chance of global economic recovery higes on a recovery of world trade."

With GBP and EUR breaking into higher trading ranges in the last few days, and no inflation in sight, despite the endless cheerleading for higher rates among the coupon clippers, both Central Banks sent an unambiguous signal that the recovery is more problematic than we have been led to believe. Clearly they are living with data that conflict with the public "recovery is here" mood. Both Central Banks took full advantage of the strength of their respective currencies, if not making a deliberate effort to lower the EUR and GBP against Dollar and Renminbi.

It is interesting to note that the currencies that have been allowed to strengthen in recent days are the ones where exports have benefitted tremendously from China's "buy and store" commodity investment program. Only In very recent days have we begun to see a rotation toward risk assets of the EM group in general. Watch the action around the MXN for evidence of the duress on governments where the flows of hot money are coming in at the expense of collapsing export sales and rising unemployment.

Despite all efforts by the Chinese and others to invest in increased capacity for export production, the imbalance in the global economy is a dearth of effective demand.

The stimulus checks are "expiring money" or "money with a high negative interest rate." Since the only way to get the cash is to move very quickly to buy a car, the stimulus is real and immediate. Last year China handed out "cash cards" with an expiry date. The bump in consumer spending was immediate, clearing inventories and priming the pump for a restart of factory orders. When Germany ran a clunkers program early in the year to clear auto inventory and improve the safety and environmental friendliness of the auto stock on the roads, it required that the customer scrap the car and get a receipt from the scrap yard. The scrap yards were overwhelmed. Looks like the auto-dealers are more effective agents of a stimulus plan.