Friday, December 31, 2010
Currency Wars-II/Dollar Tsunami
The Thailand media (The Nation) published an article “Dollar Tsunami Will Threaten Asian Economies” on 5 November 2010. According to the article, “US banks and US funds are getting almost free money from the Fed to speculate in global assets. Fundamentally speaking, the US dollar does not have any intrinsic value because it is not backed by any assets. The Fed just prints more and more dollars out of thin air. As a result of this second round of printing, we can expect to see bubbles in equities, commodities, oil prices and other hard assets.” During the first round of quantitative easing by the Fed, it spent $1.7 trillion to purchase US Treasuries and mortgage-backed securities in 2009. Yet, it has failed to jump-start the American economy. Many countries including China, Australia, India, South Korea, and Thailand are vulnerable to the inflation, it might create hyperinflation in the future. As the Nation asks, “how can the Fed expect the second round to have the intended effect? If this second round also fails, will the Fed continue to introduce further rounds into infinity?” Will the Fed keep a shadow account or engage in off-balance-sheet transactions? The US government should learn from Thailand’s experience and mistakes during the 1997 as the country defended its baht off-the-balance-sheet.