Fed's Quantitative Easing Draws International Criticism
How was the international reaction to the Fed's massive quantitative easing plan? Decidedly not good.
The Fed's program, in which it will buy up to $600 billion in new U.S. debt (as a part of a $900 billion plan, as HuffPost's Shahien Nasiripour reported), has been criticized by foreign leaders as potentially damaging to the world economy. "With all due respect, U.S. policy is clueless," Germany's finance minister, Wolfgang Schaeuble, said Friday, according to Reuters.
Although he didn't go into much detail, Schaeuble said the issues that the Fed's policy attempts to address are not the country's fundamental problems. Quantitative easing is designed to lower interest rates: It makes the yield on Treasury bonds go down, and then lower rates spread, in theory, to the rest of the economy. In Schaeuble's words, it promotes liquidity, or the ease with which money moves around. It also promotes inflation, which, like low interest rates, theoretically encourages people to spend money now.
"With short-term interest rates already about as low as they can go, the FOMC agreed to deliver that support by purchasing additional longer-term securities," Fed Chairman Ben Bernanke wrote in a recent op-ed.
The blog Zero Hedge provides a helpful metaphor for understanding what, in its opinion, the Fed is doing: "Our Government Is Like a Plumber Trying to Fill the Bathtub by Pouring in More and More Water ... Without Plugging the Drain."
Europe's central bank issued an implicit criticism of Bernanke's policy when ECB head Jean-Claude Trichet decided he would not follow suit. And although French finance minister Christine Lagarde didn't complain outright, she doesn't seem happy with the Fed's move.
"The euro bears the brunt of the move," she said Thursday, according to the Wall Street Journal. "I am not making a judgment on the U.S. quantitative easing," she added. "But it shows the imperative need to rethink the international monetary system and cooperation mechanisms."
Other world leaders also expressed criticisms. The head of China's central bank, Zhou Xiaochuan, said on Friday that the U.S. policy should take the world economy into consideration. "If the domestic policy is optimal policy for the United States alone, but at the same time it is not an optimal policy for the world, it may bring a lot of negative impact to the world," he said, according to AP.
China itself could be accused of such self-centered thinking, since it maintains a cap on the value of its currency, to the detriment, critics say, of the world economy. But if the value of the U.S. currency were to fall, it would, by definition, cause the relative value of China's to rise.
Another official at China's central bank, adviser Xia Bin, appealed to "wise Westerners" to sympathize with China's plight. "As long as the world exercises no restraint in issuing global currencies such as the dollar -- and this is not easy -- then the occurrence of another crisis is inevitable, as quite a few wise Westerners lament," he wrote, according to Reuters.
Brazil, too, isn't happy. The head of the country's central bank, Henrique Meirelles, doesn't like the idea of easy money. "QE creates excessive liquidity that flows over to countries like Brazil," he said, according to Reuters. "Definitely, for Brazil it does create a problem."
Investor Jim Rogers, for his part, had a colorful way of describing America's central banker: "Dr. Bernanke unfortunately does not understand economics, he does not understand currencies, he does not understand finance," he said Thursday, according to Bloomberg. "His whole intellectual career has been based on the study of printing money.
"Give the guy a printing press, he's going to run it as fast as he can."