Fed's $600bn gamble risks throwing away America's biggest asset

Telegraph
"Apparently, there's been an election in the US. The BBC tells us that America's wholly unsurprising verdict on the past two years is frightfully important and signals the end of the Obama dream, whatever that may have been; it was never entirely clear. .....It didn't seem to occur to him that Obama's drubbing was not so much a case of haplessly falling victim to economic circumstance but was in fact largely down to incoherent legislative experiment, blind disregard for the deficit and chronic mishandling of the economy. Americans had reasonably expected better. Obama's punishment will make little if any difference to the mess the US economy finds itself in and in any case is something of a sideshow against the latest high risk policy initiative the Federal Reserve is visiting on an already battered nation. The Hill can't act, but the Fed still stands ready and willing at the roulette wheel.

The fresh $600bn (£372bn) infusion of quantitative easing announced on Wednesday may or may not provide a lift for beleaguered domestic demand – both Goldman Sachs and HSBC have said much more is needed to escape a real or imagined liquidity trap – but one thing it certainly does do is further debauch the currency. Never before has dollar hegemony been so much under threat. By flooding the world economy with yet more freshly minted dollars, America further undermines faith in the greenback as an internationally reliable store of value and is thereby squandering an economic and geo-political asset of huge importance to the nation's history.

The dollar's reserve currency status means that America can borrow at will in its own currency from the rest of the world, and at favourable rates to boot. This privilege is being recklessly thrown away. Every time the Fed prints more dollars to fight the domestic recession, it further devalues that debt. The lenders are understandably getting restless.As is now becoming steadily more apparent, dollar hegemony was a major underlying cause of the crisis, for it allowed America to go on an unrestrained borrowing binge; the developing world is ever more minded to think its demise part of the solution.

The Fed is taking a massive gamble with America's long term future by blindly pursuing further monetary stimulus; it may take time, but the dollar's all powerful reign on the world stage is drawing to a close."