Keeping a Wary Eye on Obama, Part IV

Der Spiegel writes:

The occupant of the White House may have changed recently. But the amount of ill-advised ideology coming from Washington has remained constant. Obama's list of economic errors is long -- and continues to grow.

The president may have changed, but the excesses of American politics have remained. Barack Obama and George W. Bush, it has become clear, are more similar than they might seem at first glance.

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It is often said that the Chinese and the Japanese will buy government bonds. But the truth of the matter is that trust in the gravitas and reliability of the United States has suffered to such a great degree that fewer and fewer foreigners are purchasing its government bonds. That's why the Federal Reserve is now buying securities that it has printed itself. The Fed's balance sheet has more than doubled since 2007, making the US central bank one of the world's fastest-growing companies. The purpose of this company, though, is to create money out of thin air.

Fallacy No. 5: The additional money is harmless because the economy is starting to pull together again and there is no threat of inflation. The truth is that the quiet on the inflation front is deceptive. The hot money is accumulating in people's savings accounts and in the balance sheets of banks that aren't keen to lend money at the moment. The supply of money has increased by 45 percent in the last three years and there has not been a corresponding rise in hard assets or production. That imbalance will eventually make itself felt in the form of inflation.

The dollar, which has already lost 40 percent of its value against the euro since 2000, would then devaluate and its reputation would be further diminished. The world's reserve currency could be pushed through the floor by the shockwaves. At that point, those waves would also wash over the rest of the world. Then people would have to look back and say that the means the US used to fight the economic crisis in fact paved the way for a currency crisis.