The Fed struggles to reclaim its global clout

Marketplace Staff Nov 15, 2010

The Fed struggles to reclaim its global clout

Marketplace Staff Nov 15, 2010


STEVE CHIOTAKIS: Here at home, the Federal Reserve has begun pumping money into the U.S. economy. The Fed says that’ll bring down long-term interest rates and help jolt a lack-luster American economy. But other countries claim the U.S. is devaluing the dollar and adding to turmoil to the currency markets.

Fortune Magazine’s Allan Sloan says its another example of the U.S. economy not holding the clout it once did. Good morning Allan.

ALLAN SLOAN: Good morning, Steve.

CHIOTAKIS: How did the U.S. get into this position?

SLOAN: The U.S. messed up its economy by having a bunch of bubbles. It’s over-borrowed from the rest of the world, and now instead of being a huge creditor nation, it’s becoming dependent on everybody and that’s a weak position to be in.

CHIOTAKIS: Does the Federal Reserve have the same global economic clout that it once had?

SLOAN: Alas it doesn’t. It’s in the same position as the country because as the U.S. has declined relative to the rest of the world, so has the Fed. And we’re used, in this country to think of it as all-powerful. And it’s not even remotely all-powerful.

CHIOTAKIS: Is it because, Allan, of the down-trodden U.S. economy that the Fed is weaker, or is the other way around? Chicken or egg here, Allan?

SLOAN: It’s a little bit of both. I think we could call it a “chegg,” where part of the problem is the Fed’s lowered short term interest rates to zero to bailout the U.S. economy and the world financial system, but the U.S. economy is still weak, so the Fed is inventing all of these things, including this stuff called quantitative easing that is not going down well in the rest of the world because it’s debasing the American currency and running up the price of commodities.

CHIOTAKIS: Who’s getting stronger, Allan, because of the Fed’s weakness and because of the American weakness?

SLOAN: Collectively, the rest of the world is getting stronger regular to the United States. If I had to pick winners if this were a sports show which I guess to some extend, I have to do, I would pick China, I would pick Germany though I’d want to come back in five years to see if they were still winning.

CHIOTAKIS: Will the economy, the U.S. economy Allan, ever get its luster back, and when I say that I mean the Fed as well?

SLOAN: Absolutely. The United States economy will get better and will be lustrous. The Fed will get some of it’s luster back, but both of them — you have to think of them like aging ballplayers. They’re still pretty good but they’re not what they were and they’re never going to be.

CHIOTAKIS: You and your sports metaphors. Fortune Magazine’s Allan Sloan. Allan, thanks.

SLOAN: You’re welcome, Steve.

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