Fed chairman, Ben Bernanke, has begun implementing his QE2 to combat deflation. This is de facto devaluation of the dollar and its goal is to create some inflation so people will spend. Another side effect of devaluation is making American goods cheaper for exports. The thinking is that cheaper American goods will lead to demand for these products and thus create jobs. The problem is this will not work in today’s environment as the US doesn’t produce much for export anymore. The Economic model pushed by both parties was to have Americans as consumers, not producers. The truth is this QE2 gamble will not kick start the US economy.
A weakening currency traditionally helps a country raise its exports and create more jobs for its workers. But the declining value of the dollar may not help the United States increase economic growth as much as it might have in the past.
Though a weakened dollar would help exports to some degree, business executives and economists said that because of the ways American multinational companies operated, it was uncertain whether it would cause much of an increase in hiring.
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Even when a company enjoys a relative surge in foreign sales, it won’t necessarily lead to a hiring spree. That is because the largest proportion of American exports are still manufactured goods, which are no longer so labor-intensive.
And many of the companies that still manufacture in this country are businesses that have not gone offshore because they are too small to justify setting up overseas operations. A weak dollar can help their businesses, but it may not prompt a wave of hiring.
Read the rest: Weaker Dollar Seen as Unlikely to Cure Joblessness
At this point the Federal reserve and the Obama administration are using gimmicks to get the economy going. The only solution is to massively reform our tax code and regulatory system to make America attractive to foreign capital. This is what will create jobs, not a currency devaluation. Many nations around the world have tried currency devaluations and the result was economic stagnation. Until hard choices are made in regards to our fiscal situation, America will continue to be the sick man of the global economy.
Tags: Ben Bernanke, Federal Reserve, Global Economy, Obama Boom, US Dollar
