La pregunta de la mañana: Why Bernanke's plan is raising trade tensions?

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Why Bernanke's plan is raising trade tensions

Federal Reserve chief's gamble shakes up global markets

By PAUL WISEMAN

The Associated Press

updated 11/11/2010 5:38:29 PM ET 2010-11-11T22:38:29

 

WASHINGTON — The Federal Reserve's plan to buy more Treasury bonds has incited critics at home to complain of inevitable high inflation and financial turmoil.

It turns out many foreigners are pretty angry, too. They say the Fed's $600 billion program is a scheme to give U.S. exporters an unfair edge — one that endangers the global economy.

Is it? Or is the Fed's plan a credible way to help end a desperate jobs crisis and revitalize a still-tepid economy?

In either case, few dispute that Fed Chairman Ben Bernanke is taking a gamble. Whether or not his plan succeeds in aiding the U.S. economy, it risks triggering a trade war and encouraging dangerous speculation in financial markets.

Already, the finger-pointing threatens to wreck this week's summit of world leaders in Seoul, where the Fed's plan has set off vociferous debate. President Barack Obama on Thursday was forced to defend U.S. policies at the summit, saying "the most important thing that the United States can do for the world economy is to grow."

Many economists say the Fed didn't have much choice — not with U.S. unemployment stalled at 9.6 percent, short-term interest rates already near zero and Congress refusing to spend more to jolt the economy.

Many economists say the Fed didn't have much choice — not with U.S. unemployment stalled at 9.6 percent, short-term interest rates already near zero and Congress refusing to spend more to jolt the economy.

"They've run out of bullets," says Uri Dadush, director of the international economics program at the Carnegie Endowment for International Peace.

So the Fed announced plans to print enough money to buy an average of $75 billion in Treasury bonds each month for eight months. And it left the door open for more. The bond-purchase program is intended to energize the economy by forcing down long-term interest rates. Those lower rates might encourage some consumers and businesses to borrow and spend more.

Will the Fed's program do that?

Not likely, its critics say. For one thing, mortgage rates have already dipped to record lows without reviving the housing market, reducing high unemployment or stimulating much growth. Would people and businesses that can't or won't borrow now at super-low rates start borrowing if interest rates on loans dip a bit more — and borrow enough to rejuvenate the economy?