Counterpunch- The Meltdown of the US economy - The Fed Sinks the Dollar - by Michael Hudson

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The meltdown of the US economy - The Fed Sinks the Dollar - by - by Michael Hudson

Against the recommendations of most economists and even the Financial Times of London, the Federal Reserve Board yesterday cut its discount rate by yet another quarter-point, to just 2%. Ostensibly, the intention is to try and spur economic “recovery” – as if a cut in the interest rates would do this. At first glance this seems to reflect the Fed’s ideology that manipulating the interest alone can expand or contract the economy – as if it is like a balloon, with its structure is pre-printed on it, to be inflated or deflated at will to control the level of activity.

And to Europe, I should add. The Fed’s act to subsidize U.S. bank lending to Europe will help raise the euro’s exchange rate relative to the dollar. This will be a boon to currency speculators. And it will help keep the price of oil and food down to European consumers. But it also will raise the price of European labor and other domestic costs (including the cost of real estate, which is playing a rising role in employee budgets throughout the world). This will tend to make European exports even more expensive in global markets – including the Airbus, much to the joy of Boeing, and European autos, much to the joy of GM and Ford.