How will the US finance its current account deficit without QE2?
Interest rates will necessarily go higher. And that, of course, will be when it hits the fan.
The question, IMO, is not the way you phrase it but instead is this: How will the US will finance its future current account deficits if it engages in a massive round of QE2?
Bernanke is not as immensely stupid as many believe. Thanks to his predecessor's policies, he is between a rock and a hard place. He cannot renounce his training and engage in a policy volte face even though, as an intelligent human being, I think he can clearly recognize that the monetarist and Keynesian credos are bankrupt.
The above is another reason why I think QE2 will disappoint. Ironically, the rumor of a massive round of QE2 has already done what actual QE2 was intended to do.
We need a Cameron in charge, and we have one in David Walker, but no one listens to him because austerity is not politically feasible. In fact, we seem to want exactly the opposite, i.e., loose money and more false (and toxic) prosperity.
We don't do anything substantive until our backs are to the wall. Unfortunately, insidious economic problems of the kind we are facing never come instantly, nor do they announce their presence at the inception. Rather, they start small and mushroom into huge and intractable difficulties.
Will it be too late by the time our fighting spirit is engaged? Who knows, but I am not optimistic. These are enormous difficulties we are facing. And ignoring. |
