Well before the commencement of the Seoul meet, the
governments of China, Germany, Brazil, and
Russia, along with the Republicans of America, started screaming
at the US policy of `quantitative easing' (QE2). It all started with
the Fed announcing its intention to purchase another $600
bn of long-term Treasury securities essentially "to promote
a stronger pace of economic recovery and to help ensure
that inflation [which is reported to be running at the lowest
level ever recorded of just 0.6%], over time, is at levels
consistent with its mandate," so that bond yields will be down and
employment gets maximized.
And these countriesparticularly, China and
Germany which are known to maintain huge trade
surplusespounded the US with redoubled energy at the Summit too, indeed
as never before. No one is willing to buy the argument that
since the short-term interest rates in the US are already near
zero, the Fed, which like any other Central Bank being engaged in stimulating its
economy, has no alternative but to create new bank reserves to purchase medium- and
long-term securities. It is simply a `monetary policy'!
Yet, no one is ready to agree, for they consider it as `inflationary' and a means to
currency manipulation. Which is why they argue that the current move of the Fed is certain
to lower the international value of dollar and raise the world commodity prices, leading
to a fall in the profit margins of businesses, obviously, of the export-oriented economies.
To a certain extent, there is truth in the argument: after all,
if certain countries are to run trade surpluses, there must
be some with trade deficits. And all along, it is the US
which happened to be the country with deficit. But the present
move might, to a certain extent, weaken the US dollar, making
the US goods more competitive globally, and lessen the US
trade deficit; and that is what is disturbing these
trade-surplus countries, for, after all, they need the US market for
sustaining their export-led economies. |
