Bernanke Taking Big Gamble on Policy

Lower dollar stimulates economy but risks trade wars: Allan Sloan

By John Johnson,  Newser Staff

Posted Jan 16, 2013 12:48 PM CST
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(Newser) – Ben Bernanke's push to keep interest rates low might be stimulating the US economy, but it's also raising the risk of currency wars, writes Allan Sloan at Fortune. "Cutting interest rates faster and more deeply than most other central banks has weakened the dollar against the currencies of many of our major trading partners," he writes. This has benefits for the US—for one thing, it makes our exports cheaper and thus more attractive. But there's a "but."

"The problem, which reared its head in the run-up to the Great Depression 80 years ago, is that if everyone devalues, no one benefits," writes Sloan. "Instead, you get widespread instability, fear, and trade wars. The prospect of that makes even a congenital optimist like me more than a little nervous." Bernanke better be careful, because he's playing a "complicated, high-stakes game" here. Read the full column, which talks about another side effect of Fed policy—deficit reduction.

Federal Reserve Chairman Ben Bernanke.
Federal Reserve Chairman Ben Bernanke.   (AP Photo/Manuel Balce Ceneta)
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