More Chinese and Middle Eastern money heading Down Under: recipe for inflation?

December 23rd, 2006

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In our previous article, Awash with cash?what to do with it?, we asked the question of where the vast amount of surplus US dollars reserves (from China and the oil-producing Middle Eastern nations) will be recycled to.

Today, this news article caught our eye: The rush is on, the ride is wild. From this article, we learnt that according to the ANZ chief economist Saul Eslake, the private equity boom (we are more inclined to call it a ?bubble?) is funded by ?an absolute flood of money coming out of Asia and the Middle East. There is a huge amount of money looking for homes, and some is going to risky areas.?

It is forecasted that in Australia, the pace of takeover and leveraged buy-out activities by private equity will accelerate in 2007. We can imagine that with more flood of liquidity (money) heading for Down Under, we can expect price inflation to become more of a problem as these money permeate to the rest of the economy (see our article, Cause of inflation: Shanghai bubble case study, for our discussion on the Austrian School?s view on inflation).

The world is still flooded with too much liquidity (money). Just like in 1929…

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