November 7, 2010

QE2 Draws International Ire; Germany Calls It 'Clueless'

Other finance ministers more cautious in response to $600 billion move

In the wake of the Fed’s announcement on Wednesday to put another round of quantitative easing into effect, reaction from around the world has grown louder—and it’s not happy. Even though the $600 billion QE2 reflects the desire of the Fed to stimulate the economy, which it hopes will result in job creation and spending, Europe has not adopted the same policy, instead leaving interest rates unchanged. But the U.S. action has angered foreign leaders, who have not been stinting in their criticism.

Reuters reported that Wolfgang Schaeuble, Germany’s finance minister, called the U.S. policy “clueless” on Friday, after Economy Minister Rainer Bruederle expressed concern on Thursday that the U.S. action was not enough and that it was artificially influencing the dollar’s value. Bruederle, in another Reuters report, also said a currency war must be avoided, calling such an event a “disaster,” and worried that the results of the U.S. midterm elections indicated a trend in this country toward protectionism.

Schaeuble promised that Germany would address its concerns with the U.S. directly, as well as at the upcoming G20 meeting. "With all due respect, U.S. policy is clueless," he said, adding that the problem was "not a shortage of liquidity. It's not that the Americans haven't pumped enough liquidity into the market."

France was not so direct in its criticism of the easing policy. Instead, Christine Lagarde, France’s finance minister, said in a Thursday Wall Street Journal article, “"The euro bears the brunt of the move . . . 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."

Jean-Claude Trichet, head of the European Common Bank, indicated his rejection of the action by refusing to follow suit—the ECB left its interest rate unchanged on Thursday, as did the Bank of England—and his statement at a news conference that it “isn’t a normal situation” for financial institutions to depend on extraordinary ECB funding.

On Friday, China’s central bank chief Zhou Xiaochuan criticized the move in an AP report, saying that while it’s understandable, it might harm the rest of the world. "If the domestic policy is optimal policy for the

 

United States alone, but at the same time it is not an optimal policy for he world, it may bring a lot of negative impact to the world. There is a spill over. We have to solve this problem by reforming the international currency system." He gave no specifics on such reforms.

Henrique Meirelles, head of Brazil’s central bank, also had harsh words for the policy. In a Reuters report, he said, "QE creates excessive liquidity that flows over to countries like Brazil. Definitely, for Brazil it does create a problem and Brazil will present proposals in that regard to several countries—the U.S. and China—to reach a different agreement not to generate so many distortions."

Even U.S. citizens aren’t necessarily happy with the Fed’s actions. In a lecture Thursday at Oxford University’s Balliol College, Jim Rogers, of Rogers Holdings, had some unkind things to say about Fed Chairman Ben Bernanke’s decision. In a Bloomberg report, Rogers said, “Dr. Bernanke unfortunately does not understand economics, he does not understand currencies, he does not understand finance . . . All he understands is printing money.” Rogers went on to add, “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 . . . Debasing your currency has never worked.”

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