Everyone around the world is upset about the Fed's $600B QE2

[Kurt_and_Hunter]

The lead story in the Washington Post today is only the latest in a barrage of "Everyone in the world hates what the Fed is doing" stories.

http://www.washingtonpost.com/wp-dyn/content/article/2010/11/09/AR2010110907512.html?hpid=topnews

Nations everywhere are saying that Bernanke is going to blow up the world with this insane policy... worse than flying monster heads! And, unfortunately, some folks looking for the worst will see these foreign opinions as validation of something.

But this is not the Iraq War where foreign opinion was more sensible and less biased. This is international trade where everyone is very biased.

These folks are upset that Bernanke might make the US Dollar drop in value.

The United States has had a huge trade surplus every year since who-knows-when. We import a lot more than we export.

People exporting to us want a strong dollar because they get paid in dollars and if our currency is stronger than theirs we will buy even more of their stuff. People exporting in general want a strong dollar because that makes American stuff more expensive and holds down our exports. And people holding our bonds want a strong dollar because the bonds get paid back in dollars.

Everyone in the world who competes with us wants us to have a strong dollar and no, they are not all motivated by altruism. (Note that China is engaged in deal-violating currency manipulation to make their currency weaker.)

The US needs a weaker dollar for many reasons. The US also badly needs some core inflation. We cannot possibly get back to anything like full employment without it. And that is inconvenient for other nations.

Tough.

Like all Fed chairmen, Ben Bernanke is an inflation hawk, deflation skeptic and excruciatingly cautious. He is also, sad to say, one of the finest economists we've ever had chairing the Fed. He is not 100% on board with the progressive-econ view but he follows the numbers where they lead and, since facts have a liberal bias, he has been aggressive because that's what the numbers demand. (If Alan Greenspan was still running the Fed we would have 15% unemployment right now.)

He would not be doing this unless he saw the relative threat of deflation as considerably higher than the relative threat of inflation. And the idea that everyone has a keener understanding of the risk of inflation than the Chairman of the US Federal Reserve is just weird. The man's job is to over-obsess about inflation to the ultimate detriment of the working man and woman. That's what a Fed chair does.

Inflation is bad for people who hold debt; the super-rich, banks, brokerages so the Fed's inflation concerns are always exaggerated. When a Fed chairman says "inflation is the least of our worries" (which is what Bernanke is saying, in effect) then the deflation risk is something to take seriously.

[Joanne98]

1. Currency wars! They're upset because weakening the dollar increases our exports.

Americans are only suppose to give their jobs away. NOT create them!

:sarcasm:

[leveymg]

2. Here's the right link for that WaPo editorial:

http://www.washingtonpost.com/wp-dyn/content/article/2010/11/09/AR2010110906198.html :hi:

[Kurt_and_Hunter]

4. The link in the OP is to a news article

It's the lead in the Post print edition today.

"As Obama arrives in Seoul, Fed decision clouds G-20 debate"

Your link to the editorial "Easing does it?" is also welcome. That editorial correctly notes that most of the foreign criticism is self-interested and disingenuous.

Thanks.

[Roma]

3. But really, why should we even care what the rest of the world

has to say. We need to do what's in our own best interest. If they don't like it TS.

[Yo_Mama]

5. It's also extremely bad for poor people

Like people living on Social Security with no COLAs for two years.

There's a lot of people inside the US who are mad as well; yes, a lower dollar helps exports, but since we don't manufacture a lot of things that many people have to buy, it also raises the costs of everything from tires to medicine to food to clothing.

[Kurt_and_Hunter]

6. The absence of COLAs is due to low core inflation

We have a perverse situation where most things are going down or flat in price while three key items are increasing: Food, Oil and Health Care.

Since ordinary people need those things we are in a pinch.

The reintroduction of modest core inflation in things like houses and washing machines (that people do not buy every day) will get COLA programs like SS back on track to have the usual annual increases.

It may also be useful to over-weight staples in the SS COLA, better reflecting cost of living. Usually cost of living and inflation are closely connected. The last two years they have not been. It is an imbalance that has to be resolved.

[Zenlitened]

7. I was all set to reply with a "good post!" and a thumbsup...

... until I got to the line, "He is also, sad to say, one of the finest economists we've ever had chairing the Fed."

Although I do get that you're pointing out that excellence is relative thing where this position is concerned!

:D :hi:

[Kurt_and_Hunter]

9. It is sad that he stands out in that regard

And sad that he is one of only two actual economists on the Board of Governors. There are at least two and probably three current members of the Board of Governors (retired bankers, mostly) who would have had us in a full-on depression.

Within the very narrow range of people who could possibly have gotten the job he's been quite good. That probably says something bad about the range of people who could ever have that job, but it is what it is.

[The2ndWheel]

8. So is it a zero-sum game?

Since physical reality is limited, and the economy exists within the environment, I'd have to think yes.

If it wasn't such a game, then $600 billion of imagination wouldn't matter to anyone. There wouldn't even be a need to stop at $600 billion. There wouldn't be a need to place any number on it at all.

[Kurt_and_Hunter]

11. currency exchange is a zero sum game

trade itself is not, nor is the economy in general, but if the dollar goes up relative to the euro then the euro goes down relative to the dollar, so it is a winner-loser game.

[The2ndWheel]

15. "nor is the economy in general"

Sure it is. If it wasn't, then we wouldn't have these environmental issues, which are a direct result of our economic activity.

"but if the dollar goes up relative to the euro then the euro goes down relative to the dollar, so it is a winner-loser game."

Right. And trade and jobs would be thrown into a tizzy as we quantitatively ease.

I'm not sure how currency exchange and the economy can be separated. They're linked. How can one thing be a zero sum game, and the other thing not be, especially when they concern the same aspect of society. If what we do with our currency, or if what China does with its currency, matters to any other nation's economy, so much so that it's tough shit to any complaints from abroad if we do what we want, then they're linked. Outsourcing wouldn't matter otherwise. Neither would legal or illegal immigration. Automation wouldn't make any difference.

[hfojvt]

10. you do a good job of laying it out

and that is one reason why I didn't like the Nomi Prins article from yesterday. She was, foolishly in my opinion, attacking the FED's action. Whereas I was calling for something like it over a month ago.

[Subdivisions]

12. If they're this upset about QE2, how upset are they going to be next year

when the Fed has to implement QE3 and in 2012 QE4.

Until all the banks' bad debts are allowed to default (which would kill the banks involved), there will be successive QE until we reach a state of hyperinflation. Like Zimbabwe.

[pansypoo53219]

13. it's this or another STIMULUS!

your choice republikkklans.

[Eddie Haskell]

14. Yep, even the Fed

http://www.businessinsider.com/dalls-fed-chief-fisher-debt-monetization-2010-11#ixzz14tNkNzbP

[ladjf]

16. They figure that it might help the U.S. but hurt other Countries. nt