QE2 risks currency wars and the end of dollar hegemony

[Joanne98]

As the US Federal Reserve meets today to decide whether its next blast of quantitative easing should be $1 trillion or a more cautious $500bn, it does so knowing that China and the emerging world view the policy as an attempt to drive down the dollar.

By Ambrose Evans-Pritchard

The Fed's "QE2" risks accelerating the demise of the dollar-based currency system, perhaps leading to an unstable tripod with the euro and yuan, or a hybrid gold standard, or a multi-metal "bancor" along lines proposed by John Maynard Keynes in the 1940s.

China's commerce ministry fired an irate broadside against Washington on Monday. "The continued and drastic US dollar depreciation recently has led countries including Japan, South Korea, and Thailand to intervene in the currency market, intensifying a 'currency war'. In the mid-term, the US dollar will continue to weaken and gaming between major currencies will escalate," it said.

David Bloom, currency chief at HSBC, said the root problem is lack of underlying demand in the global economy, leaving Western economies trapped near stalling speed. "There are no policy levers left. Countries are having to tighten fiscal policy, and interest rates are already near zero. The last resort is a weaker currency, so everybody is trying to do it," he said.

http://www.telegraph.co.uk/finance/currency/8103462/QE2-risks-currency-wars-and-the-end-of-dollar-hegemony.html

[SheilaT]

1. The headline makes me wonder

what the hell the Queen of England has to do with our currency.

[HereSince1628]

2. China is a huge schemer in monetary manipulation and object to competition

in a field that they had presumed to have driving control.

[whosinpower]

10. China is growing more concerned

That America will not have the ability to pay BACK what was borrowed to it. And, as the value of the US greenback continues to falter - this increases the potential of America defaulting on its debt. Do not blame China for no longer wanting to buy up American debt.

If America had proper real regulation on the financial market there - none of this would have been an issue. The global LACK OF CONFIDENCE stems from Wall Street malfeasance. And the only way that malfeasance was even possible - was deregulation. Continue to sell abroad a load of crap, and call it gold....and when little Iceland's economy collapses BECAUSE it was crap all along - it is no wonder why others would not want to fall like Iceland did.

[dixiegrrrrl]

3. QE is just another word for printing money.

which effectively reduces the buying the power of our dollar, which effectively makes most people
(except the banskters and their buddies) poorer.
So between the higher prices in the grocery stores and the devalued dollar,we are looking more and more like Argentina ( to use a most recent example).

bottom line: Bernake is screwing us.

[ixion]

4. exactly...

on all counts. :grr:

[Yavin4]

5. Worst of All: It Won't Work

Demand won't come back until the jobs come back. You can make borrowing money cheaper and cheaper. You can de-value the dollar. The demand problem is outside of the Fed's control. We're heading for DEFLATION because wages and home prices are falling.

The only cure is massive government stimulus, but given the current makeup of the incoming congress, good luck with that.

[dixiegrrrrl]

6. 'Zactly. It only serves to prop up the rotting bankrupt big banks.

[Yavin4]

7. It'll Prop Them Up for a Hot Minute

but fundamentals are fundamentals. This economy is in free fall.

[Yo_Mama]

9. It helps the banks but kills the real economy

If they carry out this policy, we will contract again, I think.

This is professors run wild.

[DoctorK]

8. which begs the question

why did Obama re-appoint this Bush nominee to the most important job in influencing the entire economy.

Does he not understand these basic tenets of economics, or is he in on 'screwing us'.

Is Geithner next to go?

[pscot]

11. When I first heard that Obama had been teaching at Chicago

I wondered what that might imply about his economic ideas. Milton Friedman owned that place for 30 years. He and his disciples bowed toward Vienna 5 times a day. They worship the anti-Keynes. Obama doesn't seem to think far outside that box. He thinks he knows, but what he knows is wrong. I was hoping he'd learn on the job, but he doesn't seem to.