MONEY-PRINTING in the US helps the world economy and does not harm developing countries, Ben Bernanke claimed yesterday, hitting back at critics of his latest quantitative easing (QE3) package.
The Federal Reserve chairman insisted that the steps he is taking should boost the US economy and so help the world economy get back on track, rather than simply benefit the US at the expense of other countries.
Critics argue QE3 leads to volatile capital flows into other countries, leading to inflation and asset price bubbles, as well as pushing down the dollar, benefiting US exporters by making them more competitive relative to their foreign rivals.
Bernanke acknowledged that “highly accommodative monetary policies in the United States, as well as in other advanced economies, shift interest rate differentials in favour of emerging markets and thus probably contribute to private capital flows to these markets”.
But he also said “the linkage between advanced-economy monetary policies and international capital flows is looser than is sometimes asserted,” arguing that weak growth in developed economies and strong growth elsewhere has driven the capital flows.
He added that such capital flows had slowed in recent years even as the Fed, Bank of England and European Central Bank have stepped up their monetary loosening, backing up his argument that policy easing is only one factor behind the global movements.
The Fed boss went on to claim that slowing exports to the US will not be hurt by QE3 pushing down the dollar, but instead helped as it increases demand from US firms and consumers for other countries’ exports.
“This policy not only helps strengthen the US economic recovery, but by boosting US spending and growth, it has the effect of helping support the global economy as well,” Bernanke concluded.