Alan Kohler writes about the Fed’s quantitative easing strategy which is effectively debasing the US dollar:
Because it is trying to reduce the world’s reserve currency, the Fed is effectively giving other countries two choices: either allow your currencies to appreciate against the US dollar and thus make your economies less competitive and crunch your export industries, or print money with us and risk (or perhaps guarantee) inflation.
It is a Hobson’s Choice, and like most other countries’ central banks, the Reserve Bank of Australia doesn’t quite know what to do.
The strategy is also debasing the more than $2 trillion of US Treasuries held by China and Japan, placing these Asian exporters in an awkward position. Repatriating their investments would send the dollar plummeting against the yuan and the yen, reversing their export advantage maintained over the last two decades through capital account inflows into US Treasuries. Capital inflows were used to offset the current account outflows and prevented the yen and yuan from appreciating against the dollar. If the flows reverse, the US will enjoy an unfair trade advantage from an under-valued dollar.
Methinks those who predict a globally dominant China with continued growth rates of 7% to 8% are a mite premature. …….Possibly a century or two.
Read more at What to do about the US currency war | Alan Kohler | Commentary | Business Spectator.
It seems impossible for the US to avoid higher taxes, inflation and means testing of benefits if they are to get entitlement spending under control. The political class simply lacks the will or the courage to address the issues directly. The FED is simply making the inflation more likely by undertaking additional bond buying.
Seems the devaluation of the dollar will depend on how well the other countries address their issues. MAy turn out to be an ugly dog contest with the US the best looking of the uglies. Japan is mired in chronic deflation and it has defied all attempts to end it. China is facing many challenges. Those who believe China will overtake the US don’t understand demographics. India makes more sense to overtake the US in the longer term.