“The upside of QE is limited. The money simply won’t go to where it’s needed, and the wealth effects are too small. The downside is a risk of global volatility, a currency war, and a global financial market that is increasingly fragmented and distorted. If the U.S. wins the battle of competitive devaluation, it may prove to be a pyrrhic victory, as our gains come at the expense of others—including those to whom we hope to export.”
— Joseph Stiglitz, October 23, 2010
“The whole idea of having a free trade area when you have gyrating exchange rates doesn’t make sense at all. It just spoils the effect of any kind of free trade agreement . . . .”
“Fixed exchange rates operate between California and New York . . . .”
“These currencies should be fixed, as they were under Bretton Woods or the gold standard. All this unnecessary noise, unnecessary uncertainty; it just confuses the ability to evaluate market prices.”
— Robert Mundell, October 16, 2010
Each time the China currency issue erupts, I like to repost my articles on the topic:
“Geithner is Exactly Wrong on China Trade” – The Wall Street Journal. January 26, 2009.
“An End to Currency Manipulation” – Far Eastern Economic Review. March 26, 2008.
“The Elephant in the Barrel” – The Wall Street Journal. August 12, 2006.
“Money and the Middle Kingdom” – September 24, 2003.
Economist Mike Darda:
There’s nothing like a credit crisis to stop inflation in its tracks.
Headline inflation will fall markedly over the coming year as energy and food prices fall from the previous spike. But inflation could later resume when the panic-induced plunge in velocity picks up. The Fed more than doubled its balance sheet to more than $2 trillion in the last two months, and it will have to be vigilant to pare liquidity as panic hoarding goes away. An inflationary weak-dollar Fed caused most of the credit crisis in the first place as it juiced the oil, housing, credit, and foreign reserve markets. Today’s crisis, which happens to be temporarily disinflationary, is not an especially pleasant trade-off to bring down the price index. Better just to keep the dollar sound in the first place.
Maximum Entropy