The Fed Wins!

I have observed before that the central bank of every major industrialized country is trying to devalue its currency.  Since in some sense this is a zero sum game, they are all locked into a race to the bottom, a competition to see who can be most successful in hammering their consumers and individual savers in order to boost sales of their domestic companies dependent on export markets.

It looks like the US is winning!  Yay for us, we have destroyed our currency the fastest!  Our government has been most successful in making our domestic consumers relatively poorer vs. those of other nations.  Who says the Obama Administration can't do anything right?

The article goes on to point out something I have been saying for years -- that the unprecedented monetary and fiscal stimulus steps that governments are taking today at the peak of the economic cycle (though admittedly a relatively weak peak) is going to leave the tank completely empty when it comes to the next downturn.

While the ECB’s initial move to cut interest rates into negative territory in June 2014 sparked a sharp plunge in the euro, further cuts last December and last week have had little effect on the currency.

“The ECB’s hand has been played out,” said Alan Ruskin, head of G-10 foreign-exchange strategy at Deutsche Bank AG. “The currency market isn’t as responsive to the ECB anymore.”

Similarly, markets have ignored the Bank of Japan’s hints at its monetary-policy meeting this week of more rate cuts to come. Not only has the mechanism transmitting ultraloose policy into the real economy appeared to be broken, but some unconventional policy tools—such as negative interest rates—have been deleterious to banks and rattled financial markets.

And maybe that's OK - maybe at some point some government starts thinking about fixing structural regulation, taxation, and government resource reallocation policies that are the true source of economic weakness.

  • Matthew Slyfield

    "that the unprecedented monetary and fiscal stimulus steps that
    governments are taking today at the peak of the economic cycle (though
    admittedly a relatively weak peak) is going to leave the tank completely
    empty when it comes to the next downturn."

    The tank was already empty before the last downturn.

  • Matthew Slyfield

    "And maybe that's OK - maybe at some point some government starts
    thinking about fixing structural regulation, taxation, and government
    resource reallocation policies that are the true source of economic
    weakness."

    Expecting sanity from government is delusional.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Not likely.

    The crop of presidential candidates all endorse some form of detrimental intervention, whether it is protectionism (Trump), or “democratic”
    socialism (Sanders), with the Sandersistas demanding even more of the policies which are causing the very problems they seek to address.

    The Fed has been dangerously irresponsible during this terrible recovery, and more of that irresponsibility should be expected, irrespective of what the political outcome of the election is.

    The beggar-thy-neighbor behavior of world central banks will continue as long as growth remains stagnant, which it will for the foreseeable future.

  • Todd Ramsey

    I agree with you on the true source of economic weakness. That said, monetary economics is complicated and poorly understood. I urge you to become acquainted with Scott Sumner at themoneyillusion.com . His "Quick intro to my views" synthesizes most of his perspective. FWIW, he too agrees with you on the true source of economic weakness.