Although commentators do not appear surprised by the contents of Bernanke's Frankfurt speech (full text in the link below), I was shocked to read what can only be described as a rather open attack on surplus countries seeking stable exchange rates, and an ode to a weaker dollar.
To start, he states that U.S. debt monetization is "appropriate" because it is a "stimulus" measure as though this were a fact, even though the stated aims of asset inflation are unproven and it is unpredictable as to where the excess liquidity from this exercise will end up (ie, will it end up driving commodity prices higher?).
Additionally, there is a direct reference to the monetization's effect on the U.S. dollar, I believe for the first time:
"The resulting increase in emerging market interest rates relative to those in the advanced economies would naturally lead to increased capital flows from advanced to emerging economies and, consequently, to currency appreciation in emerging market economies."
However, even though the U.S. is reducing interest rates and thereby lowering the value of its currency, the fault all lies with emerging market countries (ie, China):
"An important driver of the rapid capital inflows to some emerging markets is incomplete adjustment of exchange rates in those economies, which leads investors to anticipate additional returns arising from expected exchange rate appreciation. The exchange rate adjustment is incomplete, in part, because the authorities in some emerging market economies have intervened in foreign exchange markets to prevent or slow the appreciation of their currencies."
Ok - so basically, printing money to buy government bonds to "stimulate" the U.S. economy is ok and not currency manipulation meant to drive down the value of the dollar while emerging market fx stabalization policies are currency manipulation....
Is there any wonder that there is dismay among foreign central bankers at this policy?
Finally, David Rosenberg of Gluskin Sheff has an interesting take, and points out that Bernanke's remarks are entering the political relm.....
So much for Fed independence, the money printing policy very much puts this in the political relm...
From David Rosenberg, Gluskin Sheff:
"Ben Bernanke delivered a speech today in Frankfurt where he pointed the finger at China as a source of global imblance (never mind that the U.S. dollar has collapsed 70% against the yen since I joined the business in the mid-80s and the bilateral trade deficit with Japan hasn't come down one ioata. Maybe a good part of the imbalance is a U.S. tax code that massively promotes consumption at the expense of savings.)
As an aside, Mr. Bernanke's subtle approval of President Obama's fiscal policies in today's sermon is sure to draw the ire of the new GOP-dominated Congress."
Link to the Full Text of Bernanke's Speech in Frankfurt 19 November 2010
