After gold, US Fed may be the next most researched subject in the worlds of economics and finance. It used to be said that when the Chairman of Fed spoke, the markets listened. The current joke going around is that when markets speak, the Chairman listens. But, are we sure whether the joke is not on the other foot?
That QEs have not met the stated objectives is known. That a substantial body of opinion exists which is highly critical of US Fed actions is beyond doubt. It can also be not doubted that the army of economists employed by the Fed or Chairman Bernanke are all scholars in their own right and they would not be where they are if they aren't. Knowing the perils of a ballooning balance sheet if US Fed is still persisting with its actions, it is time, I think, to take stock. What is the gamble that is being played by the US Fed?
Some wild guesses
That QEs have not met the stated objectives is known. That a substantial body of opinion exists which is highly critical of US Fed actions is beyond doubt. It can also be not doubted that the army of economists employed by the Fed or Chairman Bernanke are all scholars in their own right and they would not be where they are if they aren't. Knowing the perils of a ballooning balance sheet if US Fed is still persisting with its actions, it is time, I think, to take stock. What is the gamble that is being played by the US Fed?
Some wild guesses
- Decouple the dollar from those currency manipulators by debasing the dollar
- Impose punitive costs on those who try to hang on (by making the dollar pegging expensive for them in terms of domestic inflation)
- Force US companies to shift base back to USA due to unfavourable exchange rates
- Reduce the value of external debt by the same logic. In any case, repayment of debt is in dollar terms only.
- Inflation will not take root due to falling demand (the US overconsumes anyway)
- As no other currency market has the depth and liquidity as the US dollar, even if some countries shift base they have feeble alternatives. And, they can do so only with incremental trade surpluses. Existing debt is still locked in dollars and can be paid back in dollars. The only way they can get rid of the existing stock is to either buy goods from USA or transfer it to some other country.
- The chance of a seller's strike is remote as global economy is in no shape to refuse markets. US still remains the biggest.
- Once the debt over hang is removed by dollar debasement, it will be possible to revert back to business as usual.
No comments:
Post a Comment