5 Nov 2010

"With all due respect, US policy is clueless"

China and Germany express concern over the Fed's money printing move

Germany and China have expressed concerns over US plans to pump $600bn (£373bn) into the US economy.

German Finance Minister Wolfgang Schaeuble said the US would not solve its problems, but create "extra problems for the world" instead.

Some countries fear that the US Federal Reserve's move could hurt their exports by making their currencies stronger.

China's Central Bank head Zhou Xiaochuan urged a reform of the international currency system.

He did not elaborate how the system should be changed. [i.e. without mentioning bringing an end to the US dollar's "exorbitant priviledge"!]

The US central bank announced on Wednesday that it would spend $600bn to buy government bonds, in the hope that the cash injection can kickstart the country's economy.

However, this weakens the dollar, boosting US exports while making imports more expensive.


"If the domestic policy is optimal policy for the United States alone, but at the same time it is not an optimal policy for he world, it may bring a lot of negative impact to the world," said Mr Zhou.

"There is a spill over."

China's Vice Foreign Minister Cui Tiankai said the Federal Reserve had the right to take steps without consulting other countries beforehand, but added: "They owe us some explanation."

Germany's finance minister Wolfgang Schaeuble said on German television that "with all due respect, US policy is clueless."

"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."

He added that the German government was going to hold bilateral talks with US officials and also discuss the topic at the G20 summit in Seoul next week.

On Thursday, Brazil's finance minister Guido Mantega had warned that the Fed's move would hurt Brazil and other exporters.

The latest move by the Fed has been dubbed QE2 as it follows the central bank's decision to pump $1.75tn into the economy during the downturn in its first round of quantitative easing.

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