Germany Criticizing U.S. Hypocrisy on Currency Manipulation

The thesis underlying the following article is in line with the points I’ve been making in this blog re how the U.S. has been printing in a futile effort and why the emerging countries including Korea has to fend off asset bubbles and speculative capital inflows. The major Korean media outlets pay little attention to this significant issue like American mainstream media.

From Bloomberg:

The Federal Reserve’s push toward easier monetary policy is the “wrong way” to stimulate growth and may amount to a manipulation of the dollar, German Economy Minister Rainer Bruederle said.

Fed Chairman Ben S. Bernanke yesterday gave Group of 20 finance ministers and central bankers meeting in Gyeongju, South Korea an overview of the U.S. central bank’s efforts to jumpstart the world’s largest economy. His strategy, which investors expect will soon include greater asset purchases, drew criticism at the talks, said Bruederle.

European Central Bank President Jean-Claude Trichet said that the G-20 made “no particular conclusion” after some members expressed concern about proposals for further quantitative easing in the U.S.

“The remark was made that the accommodating policy vis-a- vis the U.S. might mean problems for the emerging economies, at least in terms of inflation,” he said. “The point was made that it was much more complicated than that” and that combating deflation “was also a contribution to global prosperity. It was an exchange of views, with no particular conclusion.”

Low interest rates and weak recoveries in industrialized economies such as the U.S. have forced investors to flood emerging markets with capital, providing resources for growth yet also threatening to spur inflation, asset bubbles and over- valued exchange rates. Such concerns have prompted economies from South Korea to Brazil to take steps to slow the inflow of speculative cash.

Emerging-market equity mutual funds attracted more than $60 billion this year and bond funds lured $41 billion, both on pace for record annual inflows, according to data compiled by EPFR Global, a Cambridge, Massachusetts-based research firm. Forty- nine percent of money managers are now overweight developing- markets equities, the highest level since 2009, according to a BofA Merrill Lynch survey released this month.

“Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate,” Bruederle said. The minister has taken a pro-market stance in his first year in office, criticizing state intervention in cases such as providing aid for General Motors Co.’s German Opel unit.

U.S. Treasury Secretary Timothy F. Geithner dismissed prospects of mounting criticism of the Fed’s approach in his press conference after the G-20 meeting yesterday. When asked whether he expected Germany’s criticisms to gain steam, he replied: “I do not.”

http://www.bloomberg.com/news/2010-10-23/germany-says-u-s-federal-reserve-heading-wrong-way-with-monetary-easing.html