NEW YORK (TheStreet) -- In a recent
Bernanke, an expert on depressions and recovery, is of the same mind. And yes, he also read in college what some "defunct economist" said about "liquidity traps," and he knows we are in one now. So he does not expect that much job creation will come from $600 bond purchases? Probably not. But he also understands that the U.S. Congress is so dysfunctional that it will not pass a new stimulus package in the foreseeable future. But he has another reason for his bond purchases that he cannot state publicly. Consider the following: after this $600 billion bond purchase, the Fed will hold $1.4 trillion of Treasury Securities. That is less than the $1.7 trillion of Treasuries held together by China and Japan. Why did China and Japan buy all these Treasuries? To prop up the US$ artificially to take jobs away from the U.S. and to build up their export markets. Bernanke knows all this. He is also aware that the G-20 nations have agreed not to get in a currency war. However, he watches the numbers:
Maybe my purchase of securities will not generate many jobs in the U.S. in the near term, but this is my first step to drive down the value of the dollar globally. And if this does not work, I will print more money. What I can do to generate jobs in the U.S. is to drive down the dollar so global manufacturing will return to the U.S.And if he is, hooray for Bernanke! It is time to "debase the dollar"! Have I any concerns about this policy? Yes. Take a look at the following table. We often hear about the trade balance or current account deficit but not so much about financial flows.
In these circumstances, maybe you want to hold dollars. I do not.