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Tough Times? Print More Dosh

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It’s been a very bad week for President Obama. First, he’s lost the lower house of Congress to the Republicans, and now he’s being publicly rebuked in the press by Europe’s leaders for his administration’s approach to the financial rut.

Chairman of the US Federal Reserve, Ben Bernanke, is taking the tack (and one that is largely untested in the US) of quantitative easing, or simply printing more money. The issue is that in order to achieve the desired effect (stimulus), nations outside the US will be forced to lose out on imports, as their prices will be driven up. The UK has gone this route, and it’s still unclear whether it has helped or not. Nonetheless, China, German, and South Africa have all stepped up to the microphone to air their dissatisfaction with the Fed’s decision. The BBC reported that Germany’s Finance Minister, Wolfgang Schaeuble, described the measure as ‘clueless’ and added, “It is not that the Americans have not pumped enough liquidity into the market and now to say let’s pump more into the market is not going to solve their problems.”

Bernanke’s biggest fear is deflation and he’s made it clear before that the US will do anything to avoid the financial cage that Japan has found itself in for the last twenty years – falling prices are a trap to be avoided. After the announcement recently that the Fed will pump $600bn into the economy, global markets didn’t exactly react with enthusiasm, and the dollar twitched slightly before falling back, limp, on the operating table.

The problem with quantitative easing is, as the BBC neatly pointed out in its article, is that it’s a gambit that could easily backfire, and is something of a last resort: banks may still refuse to lend, house prices will still continue to drop, and there is already talk of ‘currency wars’ happening. Either way, Europe is not happy with Obama right now and there will be tough talks ahead.

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William R. Feins , freelance journalist from London, UK; he received his B.A. degree in Economics and his Masters in Sociology. William has always been interested in the mechanics of business and the inspiration of original thinkers, and firmly believes that the former can’t succeed without the latter. In his spare time, he enjoys the ridiculous spectacle of watching table tennis on a big screen (preferably at a pub) and reading weighty tomes about World War II.

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