Richard Koo, likely the foremost expert in quantitative easing brings us a global perspective on the Fed’s QE2 policy and he believes it is having a strictly negative impact on the USA’s ability to manage its economy. In his latest economic note Koo writes that QE is undermining the USA’s attempts to generate stability:
“Given the extreme instability and fluidity characterizing the global political and economic
situation, I think anything could happen next.
Adding to the instability is the absence of a decision-making body—the G20 is now jokingly described as the G0. Under ordinary circumstances the US would play a leadership role in this organization, but now it finds itself almost isolated as a result of the Fed’s QE2 program, which sparked a heavy backlash from many emerging nations.
To make the matter worse, Western countries are shifting their focus at the G20 meeting and other international summits from economic recovery—both in their own countries and the global economy—to the correction of imbalances. From the standpoint of the emerging economies that are currently driving global economic growth, this appears as little more than a thinly disguised effort to pass the buck.
Emerging countries have continued to post robust growth based on solid economic management without adopting US-style financial capitalism. Their first question is why they should have to participate in the cleanup of a global mess created by the issue of fraudulent Western financial instruments sold with fraudulent ratings.
Blaming China’s foreign exchange policy for the recent financial crisis is neither reasonable nor persuasive. Yet lately the US focus at G20 meetings has been the Chinese currency, and I think that is increasingly undermining US leadership within the organization.”
It’s difficult to reject anything that Koo says with regards to QE. After all, he has been right about this policy and its effects for almost 20 years running….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.