Inflation Risks and the effects of QE

The Federal Open Market Committee meets on Tuesday to set monetary policy for the coming month and a half. The committee votes on Wednesday afternoon. Here’s the FT’s US economics editor Robin Harding on what to expect:

ECB president Mario Draghi faces a grilling from the Bundestag next week. The Bundestag hearing is an attempt by Mr Draghi to appease German anger over the central bank’s plans to buy bonds of beleaguered sovereigns in potentially unlimited amounts. It may seem a very risky move, but fear not, the risk of this happening is very small, this is to reassure markets that no one can fool around with EU member states to manipulate the currency and the economy. I am going to close all the loopholes in the entire world so that there will forever be growth and stability.

A decentralise approach to Central Banking to control Inflation Risks
You need to monitor your money inflows and outflows, with your balance of payments, the mechanics of Demand and Supply applies, if you print too much money your economy will suffer, so that when America sneezes you will not catch a cold, then you can apply interest rates and swaps to control inflation, I cannot do the work for everyone, I can only show you the ropes, the days of QE will not control inflation, it will only make matters worse, how successful you are depends on the liquidity and supply of money in your own economy, you need to start tweaking your supply of money(if you have no experience you can start small and nibble to test your results), depending on others will only cause wild swings in your economy. 
Factors Affecting Inflation Risks
Money Inflows/Outflows
Balance of Payments especially with your Top 5 Trading Partners
Income and Expenditure of Balance Sheet
Currency Exchange Controls
Your Targeted Export Markets for Trade
Once you are able to visualise the factors, you could set goals for interest rates peg and swaps to control inflation risks with a long term view by an averaging method to insure against wild swings, similar to controls for currency peg against a basket of instruments. Inflation Risks is linked to Liquidity Risks especially the movement of huge funds which will destabalise the industry, so you need to be able to control such risks by spread over a Timeline and allow it to flow thru the monetary system with small gains without upsetting the markets. Ideally inflation for your domestic economy should be managed at a 2-3% range where it will cause long term capital appreciation for the growth of the property and stocks market.
– Contributed by Oogle.

Author: Gilbert Tan TS

IT expert with more than 20 years experience in Apple, Andriod and Windows PC. Interests include hardware and software, Internet and multimedia. An experienced Real Estate agent, Insurance agent, and a Futures trader.

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