"Dropping dollar" not helpful to world economic recovery

16:35, November 08, 2010      

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The U.S. Federal Reserve announced on Nov. 3 that it would buy additional 600 billion US dollars in treasury bonds, in a second round of a process known as "quantitative easing", or QE2, to spur economic growth. The Fed may embark on the second round of money printing.

The U.S. Fed’s new relaxed monetary policy triggers much controversy and has drawn a lot of criticism from the international community. "Everybody wants the U.S. economy to recover, but it does no good at all to just throw dollars from a helicopter," Brazilian Finance Minister Guido Mantega said.

Since the U.S. dollar is the world’s leading reserve currency, or anchor currency, the United States’ over-relaxed monetary policy will have a serious negative impact on the global economic and financial order. There is a concern that the Fed will realize the monetization of U.S. budget deficit via the large-scale treasury purchase plan and eventually shift the burden of economic adjustment to dollar holders around the world.

Recalling the 18-year era of former Fed Chairman Alan Greenspan from August 1987 to Nov.2005, the United States had in fact created one bubble after another and "over-drafted" the potential to fuel economic growth in the U.S. by over-relaxing its monetary policy and financial deregulation repeatedly and capitalizing on the situation in globalization and the trust of the international community in the dollar.

For a long time, the United States has, drawing support from transnational corporations and financial operations, ate away at what is the most valuable part of the world and at its own ability to create real values, and this led to the shrinkage of its manufacturing sector gradually.

Currently, the U.S. unemployment remains high, consumer debts have climbed and the mode of tired real estate market practices are hard to break. And the short-term policies to look for and cultivate new growth areas and competitive advantages cannot be effective. In short, U.S. economy has significantly increased the risk of a renewed recession and it may still maintain a lower growth rate in the next two or three years.

In such circumstances, the United States tends to choose to go on using monetary policy to stimulate economy. The Fed on last Wednesday not only launched a new round of "quantitative easing" policy but also reduced its policy interest rate to close to zero. Moreover, The Fed will continue to assess the effects of financial and other developments on economic prospects and will provide "essential" support to ease economic woes. The Fed’s resolve to rescue economy by means of money printing seems to be firm, but this may just be futile nevertheless.

In an environment with weakening effects of economic growth on the momentum, the hope of using monetary policy to create prosperity will not necessarily stave off specters of economic downturn and deflation, but will plant the hidden danger of inflation, asset bubbles and trade retaliation in the future, and erode the global confidence in the US dollar.

From the current point of view, the economic recovery has made decision makers and economist in Europe suggest cuts in the stimulus policy or plan, either through tightening up lending or slowing government investment. But the United States does not seem to opt for "tightening their belts." The policies of the United States and Europe are quite different in their orientations and, in essence reflect their different social realities and problem-solving ideas.

For the special advantages it gets from the dollar’s status as leading reserve currency, the United States looks for overseas expansion of money and assets re-allocation for additional values. However, in reconsidering or reflecting the financial crisis as the product of financial reform, the United States has not addressed the core of the problem -- the excessively relaxed monetary and financial environment. The Wall Street financiers also seem not to have completely extricated themselves from the financial crisis but begun to "recruit personnel and enlist followers" and to look forward to the next "game".

So far, the United States has all along refused to grant the ownership of key enterprises to overseas investors. It wants increasingly to print more money to cover up for real problems in an attempt to pass the crisis onto others. The policy choices in the United States have anyhow revealed vital defects in the current international monetary system.

By People’s Daily Online and its author is PD reporter Chen Daofu


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