Bernanke money supply theory and globalization

Discussion in 'Economics' started by kashirin, Oct 8, 2007.

  1. Bernanke thinks that inflating can help the economy

    Although currently all money Fed prints eventually go outside US

    So US doesn't have any significant inflation but in the same time what he does doesn't help the economy as money supply inside the country doesn't increase
    but instead of that helps other countries as money supply definitely increases
    with inflation, of course

    But in Ukraine for example, national currency pegged to US$ and inflation is around 15% but real growth is still around 8%.
    The same is true for many other countries incuding China. Their economies soar on increased US$ supply

    So inflation doesn't kill economic growth

    But the problem here - Bernanke is unable to create any significant inflation inside the US to reanimate US economy!
     
  2. I think Bernake is praying for a 70's wage price hiike spiral, but we wont get that until the ROW wages narrow much more with the US or it energy becomes to expensive
     
  3. These are known costs to having a reserve currency. Demand for it is greater than can be accounted for by the domestic economy, which makes it chronically overvalued relative to the country's trade position, and you get "leakage", because it's used internationally.
    On the other side, other countries import inflation.
    The solution is to make the reserve something other than a national currency, of course. But the above isn't Bernanke's fault. He's doing what he has to within the confines of the system he has to work with.
    And if he was really an inflationist, the US domestic yield curve would be way steeper than it is. (Although it's at least finally, finally positive. About time.)
     
  4. Yeah, but when reserve currency status is lost, as it soon will be, IMO, all that extra "demand" for dollars will quickly become "supply" trying to find a safe place to hold their store of value.

    That's what's happening, now, IMO, and its just in the beginning stage because none of the big players has puked their dollar position, YET.
     
  5. As I have replied before to the same thing, this has happened twice in the past 100 years. The actions taken in each case were very similar:

    - in 1968, the "sterling area" governments, basically former colonies who were members of the British Commonwealth, agreed to a mutual pact of controlled selling of their sterling holdings.
    - in 1999, Western central banks signed the Washington Agreement to control their selling of gold, a pact that was renewed in 2004, and is still in force today.

    These pacts were signed to prevent the massive losses the central banks involved would otherwise have suffered if panic selling of either sterling or gold were to occur.
    When the dollar's turn comes, something similar will be done. The template is there.