U.S. Monetary Policy: Too Much of the Bad

Ben Bernanke’s policies don’t help the American economy as much as they do global investment markets.

The Fed just won’t give up. It continues to pump more money into the banking and financial systems in an attempt to get the U.S. economy up and running again. $600 billion more will now be invested in U.S. government bonds — money that comes out of nowhere.

But this $600 billion (about €422 billion) won’t fire up the economic engine either because the U.S. economy doesn’t suffer from excessive interest rates, it suffers from excessive debt. Central bankers won’t be able to create a recovery with cheaper consumer credit.

On the contrary: Fed chief Bernanke isn’t helping the U.S. economy as much as he’s helping global securities markets. Low U.S. interest rates are causing an outflow of money into funds that invest in emerging economies or in high-yield bonds. The flow of money to Asia is already higher than it was prior to the crisis. Cheap money provided by the Fed is streaming to those places offering significantly higher interest rates.

The result: countries like Australia and Brazil are being showered with investor cash and commodities markets are at new record highs. That includes the all-important markets trading in foodstuffs. In a globalized world, a central bank can’t lift its own economy from the ashes, but it certainly can inundate other countries with cheap money.