Bernanke’s big mistake

The problem with Bernanke’s policy of perpetual ZIRP is that it destabilizes other nations and their banking systems. I look for a lot of nations to respond to this with capital controls in some fashion.   The flood of dollars from the FRB’s policy will otherwise drive up other currencies and foment inflation.

The US is replicating the Smoot-Hawley mistake of the Depression in a rhyming fashion. Back then, the US was an exporter that foolishly raised tariffs. This decreased exports, deepening the depression. The British pound was the reserve currency.

Today, the US foolishly destabilizes its main asset, the reserve currency. Other nations will probably dump the dollar or respond with capital controls, resulting in higher costs for US consumers and businesses,  worsening America’s economic problems.  A lower dollar means higher prices for imported goods, which of course America is highly dependent on.


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