QE2 to destroy EUR and EU

All the benefits of QE2 listed in the media, such as jobs, diluting U.S. debt owned by foreigners, can not matching one potential benefit that I do not read in the media. That is the diluted dollar floods EU, makes debt owned by Greek, Ireland, Portugal etc., denominated in EUR, more expensive to pay. That brings those nations to a new crisis, threatens the survival of EUR and EU. Am I missing something? I welcome your enlightening comment.

 

First, these countries collect taxes in EUR. So, the dollar exchange rate makes no difference.

Second, I belive the impact of the exchange rate on tax revenues from exports will be minor. The countries you listed don't live off export to the US. Ireland had massive exports to the US before the crisis (through factories opened by US companies) but most of these have closed down by now. So, the effect will likely be minor.

Finally, you are missing the feedback effect. Difficulties in countries of Eurozone weaken Euro.

 

United we stand, united we'll fall.

 

1. We can only speculate what is in Fed decision makers' mind by circumstantial evidence; Can QE2 acted or intended act as last straw to break EU camel's back?
2. Between your lines, you implied that QE2 does have detrimental effect on the EU debt nations;
3. It is all about proportion among pro/con factors, which nobody knows for sure.

thanks for you comments

 

“Behind the ostensible government sits enthroned an Invisible Government owing no allegiance and acknowledging no responsibility to the people.” -Theodore Roosevelt, 26th US President

If anything breaks EU up it's not QE but bureaucracy (apparently, introducation of regional income tax would require unanimous approval of all member states) and extravagant spending (new headquarters, brand new embassies in over 100 countries which all want the most expensive office furniture).

Further, QE affects the monetary union with currency Euro and not EU (many EU states keep their own currency). Now, do we talking of camels? I would rather say PIGS (Portugal, Ireland or Italy, Greece, Spain).

Indeed, I did. I just argued that the mechanics of the effect is more complex than in the opening post and the effect maybe far less pronounced than one may think. BTW, I think QE negatively affects the US economy too (as long as we agree the stock market is not the whole economy).

You are very welcome! You raised an interesting question!

 

(excuse me if it seems like I am waving the (US) flag),


for years, fair / free / unrestricted trade, similar to how the US receives products from abroad,

from nations of all sizes, both massive and minute,

and US exports, save for military or commercial massive products (Boeing, Catepillar, etc.) have and continue to meet with all kinds of "no demand", barriers to import, tarrifs at the border and other delay tactics...

for years, manufacturing jobs have been bought up by foreign companies, learning the trade craft, and then offshoring their new factories just acquired,

for years, NAFTA and other arrangements have been sacking the US,


and you wonder why the US finally has self interest through whatever means it has left or deems necessary.

why?

of course they're going to use their currency and every other tactic, because its all for naught at this point.....

 

That's exactly the reason weakening of the dollar against Euro or Sterling or Yen is not good for the US. US exports mainly goods that are either unique or purchased from the US for political or geographical reasons... and there is little proce competition for such goods.

On the other hand, US imports lots of commoditised goods: oil, food, clothes, outsourced labour... and weak dollar has a potential to lead to massive growth in fuel (and hence transport cost) at the same time deflating exporters' earnings.

That's why the US would rather talk China into allowing Renminbi to appreciate.

 

QE2 is a treatment. It doesn't cure.