U.S. Angers China, Germany With Weaker Dollar

Other countries are irritated about the Fed's quantitative easing

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And you thought the move was just controversial at home. Other countries are furious about the Fed's latest round of quantitative easing. Ahead of the G20 summit on Wednesday, Germany and China are emerging as particularly vocal opponents of this decision. The move effectively increases currency supply, devaluing the dollar to stimulate the economy and, it is hoped, address trade imbalances. But of course any move that makes the U.S. more competitive where trade is concerned is also making other countries relatively less competitive. That the U.S. has been giving China a hard time for doing something similar doesn't help matters. But who should cast the first stone?

  • Yes, Do Blame the American Government  "If you listen to American pundits, politicians or government officials, it's all China's fault," writes Andy Xie at China International Business. But although he won't defend China's "currency policy," he says "the US is by far the biggest source of uncertainty and the initiator of the [quantitative easing] war," which he thinks could have disastrous effects:
If you print a trillion, I'll print a trillion. No change in exchange rate after a trillion? Let's do it again, QE2. If you listen to people like Geithner, the end of the world is quite near. Rich people everywhere, not just the Chinese, are buying gold for peace of mind. When the currency values vanish in a QE melee, the rich at least have the gold to stay rich.
  • Don't Even Start with Me  "Exporting countries like China and Germany have relied on the United States as the ultimate consumer nation for years," fumes Mother Jones's Kevin Drum. "The whole world has," even knowing that it's unsustainable. "But they're addicted to it every bit as much as we are, which is why they go nuts when we take (extremely modest) measures to weaken the dollar in an effort to get our trade balance just a bit more balanced." The choice is between the imbalance disappearing "slowly and steadily" or "all at once during some kind of global panic. The rest of the world, to judge by their hysteria over the Fed's actions, is willing to risk the panic as long as it happens sometime in the future and mostly affects us. I'm not."
  • Pure Hypocrisy Out of Germany, adds analyst Marshall Auerback at New Deal 2.0. He couldn't be less impressed with German Finance Minister Schauble's talk of Germany's success being "based on the increased competitiveness of our companies, not on some sort of currency sleight-of-hand," or his idea of the American economy being in "crisis." To start with, says Auerback, Europe is hardly in a position of strength itself. More to the point, "it is ironic (and more than a touch hypocritical) that Germany chastises its neighbors, like Greece, or its trading partners like the U.S., for their 'profligacy', but relies on these countries 'living beyond their means' to produce a trade surplus that allows its own government to run smaller budget deficits." And the stuff about currency manipulation, he adds, is rubbish:
The dirty little secret of the European Monetary Union is that it locked Germany's main export competitors into the monetary union at hopelessly uncompetitive exchange rates, thereby entrenching Germany's export dominance, and its selfish, mercantilist model. ... [In addition,] it is more than stating the obvious to note that the only reason the euro has not blown apart in the past few months is because the European Central Bank, contrary to the wishes of Germany's policy-making elites, has continued to backstop the PIIGS' debt.
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