Last week, the Fed announced plans to unleash $600 billion into the economy by buying up long-term U.S. Treasuries over the next eight months. Its anyones guess if the rare and controversial move will do more harm than good for the U.S. and other leading economies, but some of the harshest critics say it wont do much to improve Americas jobless problem. If anything, the fresh money could worsen trade tensions as officials from China, Brazil and Germany worry a fresh flood of capital inflows could hurt their own economies.As world leaders including President Obama gather for the G-20 summit in Seoul, South Korea today, policy experts warn that protectionism is indeed a potential weapon in a so-called “currency war” — when economies simultaneously devalue their currencies in hopes of keeping exports competitive in the world market. The last time a full-on war actually broke out was during the 1930s, and what transpired was a flurry of trade barriers that ultimately reduced world trade and worsened the Great Depression. Though there haven’t been any significant barriers to trade so far, todays situation has the potential to pan out similar to the 1930s.In a way, the Feds quantitative easing strategy is in itself protectionist and has added fire to what could easily turn into a currency war. A weaker greenback shouldnt be the only reason to keep tariffs and other trade barriers low. But if anything positive could come out of a questionable economic policy move, its to leverage a weaker dollar at this point and encourage trade rather than block it. (Source: The upside of a down dollar)
It seems to be too early for everyone to start squeezing liquidity from economy.