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(snip)"In the US, perception management is now the key to public policy. Which means the latest round of money creation and bond buying will only “work” if consumers and investors fall for what is essentially a con — the idea that fiat currency is the same thing as wealth.
If they instead figure out that their savings are being destroyed while their government’s indebtedness explodes, they won’t invest in stocks and bonds or buy new houses and cars.
So everything depends on the marks not catching on, and all eyes are on stock prices, the dollar exchange rate, and long-term interest rates. Any of these, by gapping in the wrong direction, can cancel out the psychological impact of the Fed easing. And then everything falls apart.
How’s the con going? Not so well. The dollar’s holding up. Stocks are choppy but remain above their pre-QE2 levels. But interest rates are departing from the script. It seems that even with all the prospective bond buying, not everyone is convinced that lending money to the world’s most indebted government for 30 years is a “risk free” strategy. Long rates are starting to move up, enough to warrant two Wall Street Journal articles in one day,"(snip)



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