Every day, when the New York Stock Exchange closes, the heads of the bourse gather at a podium for the symbolic ringing of a bell.
As the bell clangs, they applaud. Depending upon the success of the day, the applause is either a celebration or a hopeful gesture that tomorrow will bring better results.
These days in the United States, the gesture usually means "let's hope for better days." That's because the economy is still sluggish. Ordinary Americans remain burdened by debt and don't buy many new goods, homes do not sell, businesses do not expand, and the stock market goes up and down without sustained gains.
So, it was in a spirit of hope that U.S. President Barack Obama's administration this week took an extraordinary step to try to stimulate the U.S. economy yet again.
The U.S. Federal Reserve announced on November 3 that it would pump $75 billion of newly printed money into the economy each month between now and June next year, a process it calls quantitative easing. That is a total of $600 billion.
The Federal Reserve believes that making so much new money available so quickly will force banks to lend money at even lower than the nearly zero percent rates today. The aim is to keep interest rates sharply down for many months ahead so consumers will start borrowing and buying again and business will start expanding and hiring.
Too Much Debt?
In the United States, the news has been greeted with praise and with outrage, depending upon whether economists believe the stimulus will work enough to justify the costs.
Stock markets in the United States and Asia were up sharply immediately after the Federal Reserve's announcement.
But one critic, Robert Heller, a former governor of the Federal Reserve, worried about how much the cash injections would add to the U.S. government's already massive debt burden.
"It's very difficult to get out of the situation that they put themselves into at the present time," Heller told Reuters. "Pretty soon, they will have $3 trillion [in government debt] and to get those $3 trillion in government purchases reversed is very difficult because the government will not be running a surplus anywhere in the foreseeable future."
While opinion is divided in the United States, outside the country there have been almost universal cries of alarm. The reason is that any sudden increase in the supply of dollars in the U.S. economy threatens to make the dollar lose value compared to other major foreign currencies. And while that can be good for the United States -- by making its exports less costly -- it can have ill effects for other countries.
One obvious ill effect is that as the value of other countries' currencies rises, those countries' exports become more expensive compared to U.S. products. The danger then is that countries that currently pin their hopes for economic growth on their export sectors will see their economies slow down in the months ahead.
China, Japan, and Brazil are just some of the global export powers especially concerned at this prospect.
In Europe, Germany's export-led economy could also be impacted negatively. And many Central European and post Soviet countries that trade with Germany would feel the effects, as well.
German Finance Minister Wolfgang Schaeuble told German public television on November 4, "I don't think that the Americans are going to solve their problems with this, and I believe that it is going to create extra problems for the world."
Potential For Bubbles
The Fed's move also has the potential to drive commodity prices even higher, as the dollar falls. Ever higher oil, precious metal, and grain prices could prove especially detrimental to some economies.
For some commodity-rich countries such as Azerbaijan, Russia, and Kazakhstan, the picture is more mixed. If the previous round of quantitative easing by the Fed is any guide, some of the money will be sent out of the country by U.S. investors eager to invest it in countries whose economies today are recovering faster than the United States' own.
Neil Shearing, senior emerging markets economist at Capital Economics in London, says that whether any new influx of dollars into booming foreign economies proves helpful or hurtful will depend much on how the countries themselves manage the situation.
He says the money can be helpful by helping spark growth, or hurtful by creating speculative bubbles. "In the near term, I continue to see further upsides for emerging markets, equity markets, particularly those in Asia but also some in Latin America, too, especially if commodity prices stay around their current levels for a while," he says. "But I think that, further out, it is looking increasingly likely that some form of bubbles somewhere in the emerging world will develop."
Bubbles occur when investors rush simultaneously into a sector, such as real estate, in hopes of making quick profits. Prices go up sharply until they reach an unsustainable level and no new buyers can be found, causing the market to crash and, often, wreaking havoc in an economy overall.
Historically, countries worldwide have had difficulty protecting themselves from speculators and bubbles. Much of the reaction to the recent global recession has been to look for ways to do so better. So, it may be little wonder that much of the foreign reaction to Washington's move has been passionate.
Chinese Deputy Foreign Minister Cui Tiankai today said the United States "owes us some explanation." Otherwise, he said, "international confidence in the recovery and growth of the global economy might be hurt."
Cui, who is also China's top negotiator on Group of 20 issues, signaled that Beijing wants Washington's move to be a top subject for discussion at the upcoming G20 meeting in Seoul next week.
Germany's Schaeuble said much the same. "We are going to discuss this in a critical fashion with our American friends both in bilateral talks and of course at the G20 summit," he told German public television.
But Washington will not easily be chastised. U.S. officials are likely to argue that reviving the U.S. economy is not only in the U.S. interest, but also in the interest of its trading partners, whose exports need a strong market.
The sparks ahead of the Seoul meeting suggest it will be another difficult test of the world's ability to find a common approach to the global economy.
In a way, the tension is nothing new. Back in 1971, U.S. Treasury Secretary John Connolly famously -- and undiplomatically -- noted, "The dollar is our currency, but your problem."