Ideal Taxes Association

Raymond Richman       -       Jesse Richman       -       Howard Richman

 Richmans' Trade and Taxes Blog

QE2 could have worked had Bernanke bought foreign currencies instead of Treasury bonds
Howard Richman, 8/25/2011

University of Maryland business economist Peter Morici, former Chief Economist at the U.S. International Trade Commission, has an excellent understanding of the way economics works in the real world, but he made a rare mistake in a recent commentary (Fixing Markets Needs to Start in White House). He missed the fact that the Federal Reserve, not just the Treasury Department, can engage in foreign exchange purchases. He wrote:

The third instrument of macroeconomic policy is exchange rates, the values the dollar trades at against other currencies. A cheaper dollar would boost exports; reduce imports in favor of domestic products; and increase demand, growth and jobs creation. Europe and North American countries have forsaken exchange rates as a policy tool and growth strategy, but not so China, Japan, India, and others, who use exchange rates aggressively to their benefit and the peril of western economies.

Asian superpowers intervene in currency markets -- they regulate transactions and sell their currencies for U.S. dollars to keep their currencies cheap, boost their exports and growth, and deprive U.S. and EU businesses and workers of customers and jobs.

With monetary policy and fiscal policy spent, exchange rates are the only tool the United States has left, and that is the province of Treasury Secretary Timothy Geithner and the President.

The Federal Reserve has had the authority since 1962 to buy foreign currencies under its own account without being subject to any control by the U.S. Treasury Department. Indeed, the Federal Reserve made use of this policy option during the 2008 financial collapse when it engaged in currency swaps with foreign central banks.

Economic history will hold Greenspan and Bernanke accountable for their failures to buy foreign currencies whenever foreign central banks were building up their dollar hoards. As a result, the U.S. has lost market share in one industry after another since 1996, resulting in the loss of about six million productive manufacturing jobs.

Unlike QE2, which caused U.S. inflation to rise from 1% to 3.5%, currency interventions are sustainable. Not only that, but when a country's currency is artificially high, as the dollar is today, they can be quite profitable. The Federal Reserve could make considerable money for the U.S. government by buying Chinese yuan now, and then selling them later, after the dollar falls 40% against the yuan. QE2 could have worked had Bernanke bought foreign currencies instead of Treasury bonds.

Your Name:

Post a Comment:

Comment by M, 8/27/2011:

What are the chances that the U.S. will prevent the repatriation of U.S. dollars from overseas?

Can the monetary problems of Iceland, and the government’s response to those problems be seen as a possible model for the U.S.?  

  • Richmans' Blog    RSS
  • Our New Book - Balanced Trade
  • Buy Trading Away Our Future
  • Read Trading Away Our Future
  • Richmans' Commentaries
  • ITA Working Papers
  • ITA on Facebook
  • Contact Us

    Dec 2021
    Nov 2021
    Oct 2021
    Sep 2021
    May 2021
    Apr 2021
    Feb 2021
    Jan 2021
    Dec 2020
    Nov 2020
    Oct 2020
    Jul 2020
    Jun 2020
    May 2020
    Apr 2020
    Mar 2020
    Dec 2019
    Nov 2019
    Oct 2019
    Sep 2019
    Aug 2019
    Jun 2019
    May 2019
    Apr 2019
    Mar 2019
    Feb 2019
    Jan 2019
    Dec 2018
    Nov 2018
    Aug 2018
    Jul 2018
    Jun 2018
    May 2018
    Apr 2018
    Mar 2018
    Feb 2018
    Dec 2017
    Nov 2017
    Oct 2017
    Sep 2017
    Aug 2017
    Jul 2017
    Jun 2017
    May 2017
    Apr 2017
    Mar 2017
    Feb 2017
    Jan 2017
    Dec 2016
    Nov 2016
    Oct 2016
    Sep 2016
    Aug 2016
    Jul 2016
    Jun 2016
    May 2016
    Apr 2016
    Mar 2016
    Feb 2016
    Jan 2016
    Dec 2015
    Nov 2015
    Oct 2015
    Sep 2015
    Aug 2015
    Jul 2015
    Jun 2015
    May 2015
    Apr 2015
    Mar 2015
    Feb 2015
    Jan 2015
    Dec 2014
    Nov 2014
    Oct 2014
    Sep 2014
    Aug 2014
    Jul 2014
    Jun 2014
    May 2014
    Apr 2014
    Mar 2014
    Feb 2014
    Jan 2014
    Dec 2013
    Nov 2013
    Oct 2013
    Sep 2013
    Aug 2013
    Jul 2013
    Jun 2013
    May 2013
    Apr 2013
    Mar 2013
    Feb 2013
    Jan 2013
    Dec 2012
    Nov 2012
    Oct 2012
    Sep 2012
    Aug 2012
    Jul 2012
    Jun 2012
    May 2012
    Apr 2012
    Mar 2012
    Feb 2012
    Jan 2012
    Dec 2011
    November 2011
    October 2011
    September 2011

    July 2011
    June 2011
    May 2011
    April 2011
    March 2011
    February 2011
    January 2011
    December 2010
    November 2010
    October 2010
    September 2010
    August 2010
    July 2010
    June 2010
    May 2010
    April 2010
    March 2010
    February 2010
    January 2010

    Book Reviews
    Capital Gains Taxation
    Corporate Income Tax
    Consumption Taxes
    Economy - Long Term
    Economy - Short Term
    Environmental Regulation
    Last 100 Years
    Real Estate Taxation


    Outside Links:

  • American Economic Alert
  • American Jobs Alliance
  • Angry Bear Blog
  • Economy in Crisis
  • Econbrowser
  • Emmanuel Goldstein's Blog
  • Levy Economics Institute
  • McKeever Institute
  • Michael Pettis Blog
  • Naked Capitalism
  • Natural Born Conservative
  • Science & Public Policy Inst.
  • Votersway Blog
  • Watt's Up With That


  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]