A global backlash has emerged against the Federal Reserve’s blatant policy of devaluing the dollar by printing $600 billion out of thin air, a move that analysts, economists, foreign ministers and even the Fed’s own employees charge will only serve to stall economic recovery and initiate trade and currency wars.
On the eve of the G20 summit in Seol, finance ministers in China, Brazil, Russia and the euro zone have denounced the Fed’s quantitative easing, adding to an already deafening chorus of critics.
German Finance Minister Wolfgang Schaeuble was one of the first to speak out against the Fed, describing its policy as “hopeless” and “clueless” and adding that
“They have already pumped endless amounts of money into the economy with extremely high budget deficits… It doesn’t add up when the Americans accuse the Chinese of currency manipulation and then, with the help of their central bank’s printing presses, artificially lower the value of the dollar.”
Ch ina and Germany in particular are reliant on exports. Given that a cheaper dollar will make American exports cheaper, and theirs more expensive, it is hardly surprising that the two countries have been vocal in their opposition to Bernanke’s QE2.
China’s Vice Finance Minister Zhu Guangyao has charged that the Fed’s move doesn’t “take into account the effect of this excessive liquidity on emerging-market economies”.
A commentary piece in a leading State Run Chinese newspaper goes one step further, as professor Shi Jianxun notes that the Fed’s intentional manipulation of the dollar’s value could cause countries to put up trade barriers.
“In essence this is printing money in an unrestricted way, which equates to indirect exchange rate manipulation,” Jianxun writes.
“If a trade war is set off, the global economy will face not only a crisis, but very likely a collapse, because it will unavoidably trigger a wave of global trade protectionism and in the end everyone’s interests will be harmed.”
It highlights just how far into the twilight zone we have traveled when a Communist Chinese mouthpiece begins to sound reasonable.
China’s suggestion that the G20 should monitor and regulate the Fed’s decision making, however, represents a further step toward world governance of domestic economic policy. The option facing the American people would then be between a private banking cartel running the US, as it currently does, or an unelected world government.
It is this very fusion of power that the intentional decimation of the global economy serves.
Printing excessive amounts of money, tampering with interest rates and alienating emerging economies abroad is exactly what caused the crisis in the first place, so why is exactly the same thing being done again? Because a cartel of elites knows that out of the chaos this engenders they can consolidate and prosper.
While US Treasury secretary Timothy Geithner has pointed to China’s efforts to “shift growth away from a model they believe is too export-dependent”, his warning that “unilateral action by individual countries could destabilize the global economy and stifle growth” is baffling in light of the Fed’s actions.
Similarly, Obama’s comment that the Fed’s actions will be “good for the world as a whole” is backward in this context. Furthermore, the president’s declaration that “We can’t continue in a situation in which some countries are maintaining massive surpluses and other countries are maintaining massive deficits,” is stupefying given that this is exactly what the Fed is encouraging.
As Jean-Claude Juncker, chairman of the group of eurozone finance ministers and Luxembourg Prime Minister, has noted that the Fed is effectively “fighting debt with more debt”.
“I don’t think it is a good decision,” he told a European parliament committee. There is great criticism of the Chinese policy, but in a different way they (The Fed) are pursuing exactly the same policy.”
Barclays Wealth analyst Michael Dicks notes that while the Fed’s actions may nominally grow GDP, any boost from marginally lower long-term rates, higher share prices and a lower exchange rate, will most likely be more than offset by international resistance.
Another analyst, Ted Scott at F&C Investments makes the point that without supply or demand for credit, the Fed cannot push the money it has created into the economy anyway. Meanwhile, it is creating dangerous asset bubbles and, he argues, is in danger of debasing the currency and generating inflation.
Even the Fed’s own employees have denounced its actions, with Governor Kevin Warsh saying he is concerned the central bank’s expansion of record stimulus may spark too much inflation, fail to aid growth and delay any plans to reduce U.S. indebtedness.
“I am less optimistic than some that additional asset purchases will have significant, durable benefits for the real economy,” Warsh said today in a speech in New York.
In his criticism Warsh joins Dallas Fed President Richard Fisher, the Philadelphia Fed’s Charles Plosser, Minneapolis Fed President Narayana Kocherlakota, Richmond Fed President Jeffrey Lacker and Kansas City Fed’s Thomas Hoenig, who have all expressed dissent with the bank’s recent decision making.
Brazilian president-elect Dilma Rousseff words on the Fed’s actions are perhaps most poignant:
“the last time there was a competitive devaluation of currencies it ended up where it did, in the Second World War.”
Article written by Steve Watson
Tuesday, Nov 9th, 2010