As the Federal Reserve Board gets ready for yet another round of quantitative easing (i.e. printing more money), one may well ask: why? If previous quantitative easing hasn’t spurred domestic spending, why does the Fed believe that more of the same will suddenly produce results?

It’s not domestic spending that the Fed really hopes to stimulate by printing more money, but, rather, exports. While the Fed’s zero interest rate policy has yet to lever much in the way of a domestic spending rebound, no one can doubt its ability to drop the value of its currency.

With the US Treasury depleted and interest rates already at zero, that’s about all that’s left in the policy tool kit. Lurking behind the Fed’s official concerns for deflation lies its real agenda—the old standby, the “beggar thy neighbor” policy of trying to export your unemployment to your trading partners via a falling currency.

And no one can say it isn’t working. The greenback has already fallen to a 15-year low against the yen. It’s down over 20 per cent against the euro, while the junior dollars of Canada and Australia have rallied to within parity.

Most of all, the greenback has fallen against gold, which is now a hair’s breadth from its all-time high. That’s because, unlike fiat currencies, bullion has no central bank to push back against the Fed’s devaluation efforts. Nor does gold have an export sector with millions of high-paid manufacturing jobs to protect. Gold is a currency with no economy to support, which makes it an ideal candidate as the other side of the US dollar trade.

But the same reasons that make gold an obvious reciprocal of a falling US dollar make it equally unsuitable as a source of stimulus to the US economy. It’s not against gold that the Fed seeks devaluation. It’s against the yuan, the yen, the euro, the Canadian dollar and the currencies of America’s other trading partners that the Fed hopes to gain some traction with job creation and economic growth.

If an already anemic recovery has spurred devaluation, consider how much more compelling that policy will be when Congress finally gets serious about reining in a record $1.3 trillion federal budget deficit.

If you think the economy needs help now, just wait until you see what it needs when yesterday’s bailouts become tomorrow’s spending cutbacks. It’s not zero interest rates but a euro/dollar exchange rate of 1.65 or a dollar/yen rate of 70 that are the real targets the Fed has in mind. And if it keeps its printing presses running, that’s exactly where the greenback will be headed.

It’s understandable why a country with nearly a ten per cent jobless rate and a budget deficit roughly a matching proportion of its GDP, should want to export its unemployment abroad. What’s puzzling is why the rest of the world still wants to hold its money as a reserve currency.

  • Bob

    One asks oneself is this economic system rational? All the great economic theories and thinking has come down to this last ditch effort to avoid the contracting death spiral. I wonder what the realtionship between downing the dollar and upping employment really is? With modern production increasing output doesn't really require all that many more man hours, give me a machine anytime. It doesn't look like there will be a happy landing,but on the way down just maybe my gold investments will go way up,and I can say what a great system.

  • Manders Steve

    The U.S. Federal Reserve is neither federal, nor does it have any reserves. It is a bankers bank, it is privately owned by the U.S. banks and prints their money. It holds no gold either.

    My point being? Just clarification.

  • Velolover2

    What are the consequences of the greenback NOT being the reserve currency?

  • JB

    Who else could attempt to replace the US dollar as the top world reserve currency?



  • Fabiocastellanos

    I wonder if the current decision of holding the dollar as a reserve currency is really coming from “wanting to do so” as opposed to actors not yet being able to find the right alternative solutions to go around the dollar. This is really needed urgently.

    However, I would not rule your statement as their so much stupidity (or cleverness) at this stage. If you are sitting in a growing emerging economy, why the hell export oil -which will be in shorter supply-, for example, and get crap (sorry, dollars) in return; especially, if you need to hold on to them for quite a while. The only gurantee you have is a depreciating value– I do not know if the word value is still appropriate. Why not just keep it in the ground and produce only what you need… exchanging things that hold intrinsic value for worthless paper is just insane…

    Just wanted to respond as I just got notice of your website. I read and enjoyed very much your book.. not only did I find it entertaining, but very useful when you put things in the proper context to allow one to measure the consequences of what is going on in comparative measurable terms to us as persons / individuals..

  • Easymoney

    Well how to beat the system while the currencies are trashed? The answer is buy copper, molybdenum etc. junior stocks as the same run that happpened in the late seventies is about to unfold in earnest. The gold juniors have already started the move, so get into base metal plays with good projects especially in good jurisdictions such as Quebec or Chile. Look for 10-50 times your money.



  • Alex

    1. Many of the powerfull leaders in other countries also have thier wealth tied to the US dollar centric financial system and stand to lose much of their “paper” wealth if they go off the US dollar?

    2. The USA has the most powerfull military in the world X100 for a reason? Just as Britian did when Britian was the center of the internation Gold standard.

    3. The world's powerfull want to ensure that they retain thier wealth and power within a new currency system and so the “transition” needs to be planned in such a manner?

  • Rojelio

    Maybe the Fed now has no choice but to print just simply to keep financing the ever-growing deficits.

  • Rojelio

    How much power does Bernanke have? Is he the boss or mainly a puppet? If he doesn't control the decisions of the Fed, then who are elected/appointed the people that control money policy?

  • Rojelio

    I think the Feds are perplexed right now because their stimulus strategy has not stimulated like they expected. The stimulus is likely failing at creating jobs because they've already offshored most jobs. They're watering infertile ground. And that damn oil price keeps wanting to flex upward.

  • Rojelio

    I think they want to export as fast as possible to maintain an income. Keep it in the ground probably means economic starvation.

  • Rojelio

    We have a powerful military. But it originated on USA being the manufacturing center of the world after WWII. How long can this be maintained and other countries (China) not catch up sooner rather than later?

  • zeke

    I think there is a global movement afoot to simply go around America. Side deals being cut in currencies, stock piling of commodities, etc. But have to be careful of America. That military plus an, essentially, illiterate population that is easily managed with the likes of Fox News plus a lot of money in their currency. This has to be a planned move until we get to a point where we can simply cut our losses and let it go. Kind of like getting out of a terrible marriage with all the resources you can. The US is done. Simply a matter of management now.

  • Max Jones

    Very insightlful as always.

    Jeff, I would like your take on the Canadian financial scene.

    I fear that that the emerging fight between at least 4 priovinces, Alberta, Manitoba, Quebec and New Brunswick against the Ottawa/Ontario single federal securities regulator scheme will damage Ontario's capital markets for years to come and the Toronto financial markets, the Toronto financial services industry and the Ontario economy.

    Please reply to I would like to discuss this with you further.

    Your insights will be valuable.

  • Easymoney

    It is sure stimulating junior exploration stocks. Get in and save yourself!

  • Mirek171

    No question that they want to maintain the ability rule. So how about introducing a new currency backed partially or fully by gold or silver or combination of both when no one would be willing to take worthless paper.Doesn't' that sound like plan.?America supposedly has the most of the gold in the world.Imagine then what happens to price gold in any fiat currency.Anyway new currency concept has been done in most recent history in Poland(about 15 y ago)and all they did is cut a few zeros.

  • rojelio

    The stock market is garbage and it's about to dead cat bounce with the biggest crash ever recorded.

    If you're pushing precious metals, I want them under my bed, not a piece of paper.

  • Easymoney

    The market will be great for 1.5 years more. Holding gold under the bed will be dangerous and it will ultimately be confiscated maybe along with your bed and everything else.

  • Easymoney

    Only Fox News gives the straight goods…they're deniers.

  • Real Albertan

    Saw this today –

    What is with the IEA prediction? They are way off base according to Jeff's book. Even if one split the difference we are not prepared.