The Atlantic Wire – Nov 8, 2010
"China's undervalued renminbi continues to be a problem. The Chinese are displeased with the U.S.'s own recent currency manipulations. Is the solution to move back toward the gold standard? Buried in a broader op-ed on the coming G20 and international currency issues, World Bank president Robert Zoellick dropped this two-sentence bomb: The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today."

The number of people who feel that they are competent enough to comment on economic policy without ever having stepped into an ECON 101 classroom is very distressing. Dr. Drezner would be wise to stick to his musings on international relations without venturing into the world of economic policy.

QE is NOT currency manipulation. The US is trying to re-flate its economy, a decline in the dollar is simply a side-effect. Moreover, it is easy for the Germans, Japanese and Chinese to intervene in currency markets to make sure their currencies don't appreciate. The US can do NOTHING to adjust the RMB-USD rate because the Federal Reserve can not purchase of $1 billion a day worth of RMB assets, to match the PBC's purchases of US assets. Foreigners are FORBIDDEN from purchasing Chinese govt. debt on the primary and secondary markets, in contrast with all other major countries. By maintaining a devalued currency the PRC simply redirects US/EU/Japanese/Indian/Brazilian/S.African economic and industrial growth to China.

This is concisely explained by a Princeton Economics Professor and recent Nobel prize winner here:

http://krugman.blogs.nytimes.com/2010/11/06/qe-is-not-cm/

It is all fine GEORGE MIFFLIN to make fun of Prof. but in the end Prof. has got it right. This is because the cost of keeping fixed rate with Dollar when Ben Printing Press is running full speed is near impossible.

Actually Bernanke is possibly on way to become Time Person of The Year second year in row. He is doing marvelous job of going against his own party - GOP. When you have new rising star like Wisconsin Rep. Paul Ryan criticizing you, immediately after winning 60+ House seats; you need some guts to withstand that criticism. This is in addition to all the opposition to Bernanke within Fed itself. (Division in Fed is open like a day light....) No wonder Obama finds time to carry water for Bernanke while on India Trip and Dr. Singh (who himself was a successful Governor of RBI for long time) sees the merit in this policy to back USA. Again with divided G20 (India backing Bernanke policy), it will not be easy for China and Brazil to mount attack on USA in G20.

Bernanke is right to detect the hopeless of expecting anything from GOP Congress in terms any fiscal solution for our recession. GOP and Tea Party are all bend upon reenacting Great Depression. All that is happening is Bernanke does not want to be a party to this flogging of Americans and want to go down the History (assuming that an entity called America remains in light of Tea Party Madness) as someone who tried his best to stop this descent.

So Prof. you are saying in the end Wall Street will take the revenge on we Americans and our last weapon of making our living (depreciate Dollar) will be also taken by Rich guys of this land. Well, that is not a pretty diagnose. Any answers? Any 'structural friend' for we poor Americans? Or do we really have to wait Barack Obama to part the skies? That is hard....

I really wish Prof. develops the line of thinking in this post and put forward a fully worked out analysis of what is happening here. He is so right here and it is all rare to find otherwise. (Don't know why all other scholars do not talk what is so obvious?)

Dan, has the U.S. had a fixed exchange rate? I don't recall one in my lifetime (I'm 36, but wasn't really paying much attention at age 5 (6 was another story, of course)). I don't think there was any question that the U.S. was going to tackle its current-account deficits largely via currencies - either by weakening its currency, or pressuring China (and the rest of East Asia) to strengthen theirs.

See Dean Baker on current accounts: http://www.cepr.net/index.php/blogs/beat-the-press/the-nyt-times-has-problems-with-arithmetic-economics-and-editorializing?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+beat_the_press+%28Beat+the+Press%29

See William Thorbecke on how other East Asian currencies affect Chinese surplus (as China imports most of its materials, and then assembles products): http://www.econbrowser.com/archives/2010/11/east_asian_exch.html

See Michael Pettis on China and the issues it faces w/r/t rebalancing the yuan: http://mpettis.com/2010/10/what-happens-if-the-rmb-is-forced-to-revalue/ and also http://mpettis.com/2010/09/the-politics-of-chinese-adjustment/

See Scott Sumner on how QE2 is working so far. http://www.themoneyillusion.com/?p=7749 And also Menzie Chen: http://www.econbrowser.com/archives/2010/11/inflation_fears_1.html

BTW, I think it's secondary evidence on how QE2 is working so far (domestically at least) that other countries are squawking about it so loudly.