G20 Opposed To Fed QE2

Reuters reports in an article entitled G20 Finds Common Ground Opposing Fed that the Fed announcement to purchase 600bn in treasuries does not share in the ideal of the members sharing common ground in terms of responsibilities toward the global economic recovery, fearful that the Fed move will cause large capital inflows into countries like China and Brazil and make their exports less competitive.

Although these arguments at face value are good arguments, if thought about with rationale for more than just a second any validity is thrown like money from a helicopter. First, because the Fed is not a government entity and this is not government stimulus. Contrary to popular belief, the Fed only shares a common mission with the U.S. government in it’s recent announcement to purchase treasuries and that is to hopefully stimulate the economy and put Americans back to work.

Another very important factor is that the Sino-US trade imbalance has been growing for almost a decade and the deliberately manipulated currency of China, who maintain tight currency controls, is a leading factor. Notwithstanding the fact that introduced as congressional testimony for years running, the US government has failed to take action declaring China a currency manipulator before the WTO, an action that could ignite cold war style sentiments between the two largest economies of the world.

Finally, leading the global recovery are precisely China, Brazil and even Germany, the countries that complain about the Fed announcement the most, countries that while experiencing high levels of GDP growth do not appreciate the Fed effort of elevating the US out of a stagnant or stalled recovery.

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