Quantitative Uneasiness

The Federal Reserve last week implemented a new round of stimulus by pumping billions of dollars into the U.S. economy has further eroded the Obama administration's popularity around the world. The Fed will purchase $600 billion in U.S. Treasury bonds-in an attempt to hold down long term interest rates and jump start the economy- a measure known as Quantitative easing. President Obama defended the move while on a 10 day Asian trip. "The Fed's mandate, my mandate is, to grow our economy. And that's not just good for the US but the world as a whole". The backlash from an increasingly jaded international community is growing. During this weeks G2o summit in S. Korea, US Treasury secretary Timothy Geithner has lectured other nations to reign in their trade imbalances-which hurts US exports. Germany, which relies heavily on exports has been vocal in its criticism of Washington. "It doesn't add up when the Americans accuse the Chinese of currency manipulation and then with the help of their Central bank's printing presses, artificially lower the value of the dollar" said German finance minister Wolfgang Schauble. Along with the Germans, Brazil, Japan and China have joined in blasting the Feds move. "The last time there was a competitive devaluation of currencies it ended up where it did, in the second world war'" said Dilma Rousseff Brazil's president-elect.

The fear from the G-20 and other emerging market nations is that printing more dollars or lowering US interest rates tends to weaken the dollar and therefore making US exports more attractive-giving US exporters a competitive advantage. This latest dust-up has taken more of the luster off of the "chosen one" who was thought as someone who would give the US an extreme makeover in the so called global community. Germany has been at odds with the Obama administration on economic issues before. Prime Minister Andrea Merkel refused to go along with the Obama administration's urging to spend billions on stimulus. Instead opting for austerity measures which are credited for turning around Germany's economy which is surging.

The Fed move has further pushed up the prices of commodities such as oil and gold-which tend to increase in tandem with US dollar weakness. As the dollar continues to weaken, American consumers will feel the pinch in the form of higher gas and food prices-just in time for the 2012 election cycle. Perhaps the administration is realizing that actually managing an economy is far more difficult than talking about managing one.