QE2 Dollars Stuffed into PBOC Mattress

Like a giant demented chipmunk stuffing its furry cheeks with acorns, China continues to squirrel away the Fed’s stimulus dollars. “Don’t Fight the Fed” you say? Well, what the Fed giveth, the PBOC taketh away.

The dollar has strengthened since the first QE2 dollars were injected into the market on November 12th.

When people study the velocity of money, they only look at bank lending. Are the banks just sitting on their reserves? But what about the Mercantilist reserves? $5.5 trillion strong, according to Dr. Bernanke. Should that not be considered when analyzing velocity?

I see a lot of nattering about the dollar losing its “reserve currency” status. If I have time, I will address that topic further, but I ask you this: Is China merely holding its $2.6 trillion dollars in reserve in order to facilitate commerce and save for a rainy day?

Don’t be ridiculous. Mercantilist nations hold dollars as a strategic economic weapon. And it has grown to such a scale that you could say that they are imposing deflation upon the USA.