Until the Global Financial Crisis (which events have shown it to be “merely” a Western Financial crisis), I was an avid fan of the FT’s Martin Wolf. His balanced but essentially capitalist perspective matched my own views, global in perspective, sceptical of quick fixes, practical, thoughtful and undoctrinaire when it came to making policy recommendations.
But since the GFC (as the Australians who were not part of it still persist in calling it!), the FT Economics Correspondent has, in my opinion, lost the plot. He has become a born-again Keynesian, narrowly pro-Western in his viewpoint and often visibly impatient with those who disagree with him, especially if they have reservations about pouring more fiscal and monetary fuel onto the embers of the conflagration that recently swept through the over-indebted West.
Martin Wolf – in one of his latest editorials – repeated the dominant narrative peddled by most (but not all) of the Western establishment that, echoing the 1930s view of Keynes, the Western World is suffering from deficient demand. Saying the opposite is apparently verboten: that it is labouring under the weight of oversupply induced by lax credit and now perpetuated by QE.
To those of us outside this narrative, especially if we live in Emerging Markets, having been lesser actors in and in some cases simply onlookers on the tragedy of 2008, we now find it galling that, flooded by the liquidity of QE, we are now expected to pay the heavy price of unwanted currency appreciation – even when we already run current account deficits! – in the wake of the desperate efforts of the US to inflate its way out of its problems at almost any cost.
QE in particular can now be seen as the monetary equivalent of an oil spill and QE II as a form of enhanced recovery technique that must be turned to when the well of QE I runs dry.
When Japan dared to cry “enough” and intervened to try and stem the Yen’s strength, it was only joining a long list of countries from Russia to Brazil, South Africa to Taiwan and Turkey to Peru who have – with varying degrees of success – been doing in their currency markets the monetary equivalent of what Florida did in its coastal waters in the wake of the Makondo oil spill in the Gulf of Mexico: erecting a boom in an attempt to prevent their financial shores from being polluted by fiat dollars.
Isn’t it about time we named the main (though by no means only) villain in the developing currency wars? BP now stands fiscally for Barack’s Profligacy and monetarily for Ben’s Pump-priming. May we ask when this spill will be staunched or is the rest of the world expected to pay the price of what happens when a democracy becomes overripe, exhibits a very low threshold of pain, cannot come to terms with Schumpeter’s destructive yang as the price to be paid for also experiencing the creative yin and in an attempt to continue living beyond its means borrow billions – nay trillions – from its grandchildren by funding those borrowings, in the interim, with the savings of surplus nations who are unwise enough to park their monies in US T-bills?
I fully accept that this argument has two sides to it, but currency manipulation can also come from – and perhaps more so – those who print fiat money irresponsibly as it does from those who grapple with the adverse consequences of such monetary incontinence. QE is quite simply a form of currency intervention.