Who Pays for Quantitative Easing?
The Guardian's Kevin Gallagher says that by depressing U.S. interest rates, quantitative easing forces developing countries to defend their currencies at crippling cost.
"The outcome of the US midterm elections has tied the hands of the government to engage in expansionary fiscal policy. The Fed alone has the power to act. The problem is, the U.S. is still in a liquidity trap, so it is not clear whether QE2 [Quantitative Easing Two] will have much of an effect. ... In today's world of financial globalisation, the implications of QE2 go far beyond the U.S. Lowering rates in the U.S. will accentuate the 'carry trade' where investors borrow cheaply in the US and park their money in developing countries where interest rates are relatively higher: private speculators reap profits on the interest rate spread and the appreciation of developing country currencies."
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