Bill Fleckenstein had some thoughts on the topic in “There’s no will to fight inflation:”
The world’s central banks are loath to take away the punch bowl. Lest you think otherwise, consider the path forged by the Reserve Bank of Australia.
After recently suggesting it might raise interest rates sometime soon, the bank had a change of heart. I quote from the minutes of its Aug. 4 meeting:
“A particular source of uncertainty was whether the recent growth in household spending was due mainly to temporary government handouts, in which case it would probably soon fade.”
We’ll see a variation of the Bloomberg headline for that story — “Australia’s RBA sees danger of raising rates too soon” — often in the days ahead. That’s because all of the central banks will be particularly reluctant to snuff out any “green shoots” in the economy.
And, when you remember that business is booming in Australia versus America (via its strong housing and commodity markets), you can only imagine how slow the Federal Reserve will be to take away the punch bowl here. This is all the more true given the political heat it will face as the unemployment problem proves to be particularly intractable. (Read “Why creating jobs is so hard.”)
Indeed, until we reach full employment (which I don’t think will happen for many years), the pressure will be on the Fed to keep printing money.
Of course, the Australian central bank is not alone. Similar cooing sounds were uttered by the Bank of England as it recently upped its quantitative easing. Meanwhile, the Aug. 19 Financial Times carried a story headlined “ECB urges more stimulus measures.”
It began: “Emergency growth-stimulating policies are still needed to support continental Europe’s fragile economic recovery, even though Germany and France have emerged from recession, a top European Central Bank policymaker has warned. Axel Weber, Germany’s Bundesbank president, made clear he would not rush to withdraw the extensive measures taken by governments and the ECB.”
Money printing is just too easy (and seemingly painless) for central planners-cum-bankers to resist.
As the above and other news reports have shown, the entire industrialized world is participating in doing the same thing. That means that everyone is devaluating their currency at about the same rate.
To my way of thinking, if there is no “supreme” currency left against which all others are measured, then the dollar will move pretty much in sync in terms of its relative value with the rest of the world.
Unless sound economic policies are suddenly put in place and ruthlessly enforced in many parts of the world (and not in the U.S.), I simply can’t see the dollar heading towards abyss.
Just food for thought.