When I was growing up, China’s Communist leaders would attack the United States as “capitalist running dogs.” How the world has changed: Chinese leaders now publicly fret about America’s reliance on “outmoded central planning.”
Talk about being called ugly by a frog.
The Chinese official specifically was referring to the Federal Reserve’s decision to pump $600 billion of extra liquidity into the economy. But instead of being called “QE2,” this new bout of quantitative easing should be called the “Titanic.”
Interest rates already are very low, so the argument from the Federal Reserve and the Obama administration that the economy is being hindered by high interest rates is laughable. If Fed chief Ben Bernanke follows through on this scheme, we’re quite likely to see an outbreak of 1970s-style inflation. And those who recall the glory days of the Carter administration will remember that an easy-money policy leads to higher rather than lower interest rates.
Along with countries such as Germany, Brazil and South Africa, China’s worried that President Obama and Bernanke will destabilize the global economy by dumping too much money into the system. This distorts trade, creates bubbles and may prompt other nations to engage in similar devaluations. The fact that China is probably guilty of the same thing doesn’t change the fact that America is on the wrong path.
And because people look to the United States for leadership, the disappointment is particularly acute. Indeed, America was almost persona non grata at the recent G-20 meeting.
The monetary move is isn’t the only Obama policy causing unease around the globe. Having seen the destructive impact of too much deficit spending in nations such as Greece, Ireland and Spain, policymakers worldwide increasingly recognize that countries need to reduce the burden of government spending to prevent a spread of sovereign-debt crises.
Nations such as Germany and the United Kingdom haven’t approached this issue in the best way. Too often, they’re using the fiscal crisis as an excuse to raise taxes rather than make long-overdue reductions in bloated budgets. But at least they recognize that the time has come to back away from the abyss of too much red ink.
The United States, by contrast, is on a spending binge of historic proportions. It’s not a one-party problem: President George Bush virtually doubled the size of the federal budget in his eight years. But Obama did promise change — yet has picked up the big-spender baton and is racing in the same direction.
The president’s failed stimulus didn’t keep the unemployment rate below 8 percent, as the White House promised: It’s stuck above 9 percent, and far higher if we include those too discouraged to seek work. But the stimulus added several more big straws of debt to the camel’s back. Germany and other nations that rejected the Keynesian approach, by contrast, have enjoyed much better economic performance.
But the unease in global credit markets flows from far more than just the faux stimulus. Obama’s next step was to demand even more government control and power over the health-care sector. The administration claims that a giant new entitlement program will reduce government borrowing, but people in the real world reject this fanciful assertion — another source of growing anxiety about America’s role as a potentially destabilizing force.
Some of these fears are overblown. Yes, the Bush-Obama years have dramatically boosted the burden of government, and one obvious symptom of this fiscal excess is a much bigger national debt. But America’s red ink, as a share of GDP, is lower than the comparable levels in many European nations, as well as Japan.
But that’s hardly an excuse. We all tell our kids that their friends’ misbehavior is no excuse for them to do the wrong thing as well.
This is a good rule for the global economy. If China is keeping its currency artificially weak, that doesn’t mean we should do the same thing. If European nations have bigger governments and more debt, that doesn’t mean we should copy their mistakes.
Ironically, the rest of the world has learned that easy money and deficit spending are a bad recipe, yet the White House somehow thinks that going back to Jimmy Carter’s policies is the right approach for America.