The Wall Street Journal’s Tom Lauricella wrote a thoughtful piece this morning called QE’s Impact Defying Logic. The story focused on FX markets.
I enjoyed the perspective. However, two counter examples resonate:
1) The comparison is largely against the majors. Countries from Korea to Costa Rica to Brazil are screaming about outsized currency moves and pressure. This is due to QE by the major central banks. So, QE is impacting currency markets.
2) QE is also having a dramatic influence on asset prices – see http://www.centerforfinancialstability.org/amfm/Highlights_Nov12.pdf.
The article raised the point that if inflation ultimately pushes higher in the US, major currencies will suffer. The question remains. Which one will fall furthest?
We believe that the CFS monetary and financial data will help provide an early warning signal.
From WSJ reporter Tom Lauricella: “It is true that the dollar is weakening against many EM countries, but from an economic perspective, the argument is that what matters is how the currency its trading partners. For Japan, in particular, it matters how the yen is doing against the U.S. dollar. Thus the focus on using an effective exchange rate/trade weighted metric. And you’re correct it’s having an impact on asset prices, something we gave a nod to in the story.”
If currency devaluation by the Federal Reserve System is beneficial, maybe counterfeiting for all could be made legal.
How has the Federal Reserve’s action over the past century affected the value of the American dollar?
Since its founding in 1913, the Federal Reserve has been a vital institution for the US…delivering stability on balance. One needs to compare the business cycle over the last 100 years vs the prior 200 to affirm this point.
That said, we are in unchartered waters with QE…where future risks outweigh small-to-negligible benefits in the near-term especially on the FX front.
For more info see:
The Fed’s Intertemporal Game, September 21, 2012 –
http://www.centerforfinancialstability.org/oped/fed_092112.pdf
A Strategic Approach to QE: A Bad Trade, December 9, 2010 – http://www.centerforfinancialstability.org/research/QE_120910.pdf
Hi Lee,
well if you would count it in Ding Dongs and Hohos you would not be able to by one single thing of it, unfortunatly.
But, yes, I mean its not a US thing, its a government thing. They have always abused the financial system – always. Thats the crucks with governments, they never tell the truth. And when there are “problems” in the financial system, they always point to the banks who have “manipulated” the structure of money – tsss, Im tired of hearing this.
Goddammit, how can it be that this Dong Dong factory has to shut down ? Unbelievable, think of all the people that have to suffer now – those that are addicted to it ! Cant the government do anything for them ???
I think it is also very dubious to talk about financial stability. Sorry to those who run this site, but there is no such thing called financial stability – it depends on how you define it. To me financial stability is something that you can feel when you go out in the street. Not something that you can read by someone who does statistics. I mean the ability to negotiate prices has totally been abandoned in the western world. That is the problem – we are stuck with this credit armageddon and nothing will solve it. Its just simply a doomed and failed system.
And now I have MY Ding Dong and Hoho !
Lawrence,
I have to disagree here. Remember, the 19th century was based on an industrial boom that let real prices decline and that powered up the purchasing power of one unit of account. Unfortuntaly it was also driven by slavery, but thats another topic. Nonetheless, it was a real booming century. The 20th century on the contrary was caracterised by the boom of the paper stuff and the debt. Its just that simple. We have borrowed and spend ourselves into hell. And Im not singling me out myself ! Im also a Ding Dong addicted Consumer – but thats just how it is. So stop lying to yourself and admit: we are all totally broke.