I think it's safe to say that there is some disagreement about whether quantitative easing will lead to economic growth. Personally, I'm a skeptic. I would rather focus on measures that promote long-term growth, for example those that can lead to productivity increases. To me, quantitative easing reflects mostly a short-term vision for growth, with very uncertain long-term consequences.
But regardless of your view on the merits of quantitative easing for growth, I think it's a mistake to ignore its impact on others. I've said before that I don't think currency devaluation is the main goal of the Fed's quantitative easing. But it will be an effect, and we shouldn't ignore it. What that means is, even if you think the Fed's policy is a good one, as many people do, you should be aware of the impact this policy has on our trading partners. The view of the Fed and the Obama administration seems to be that quantitative easing is so important for growth that we should just ignore this impact. I disagree on the importance, but even if you think it is important, I think it's worth recognizing the impact on others, and trying to mitigate this somehow.
All of this leads me to the Alan Greenspan - Tim Geithner exchange:
"America is also pursuing a policy of currency weakening. The suppression of the renminbi and the recent weakening of the dollar are, of necessity, producing firming exchange rates in the rest of the world to, as they see it, the rest of the world’s competitive disadvantage."
"The US will never do that. We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy."
Again, I think the intent/effect distinction is important here. Geithner says we are not "seeking" to weaken the currency. I think that's right. The goal is growth, not devaluation. But devaluation is an effect, which, as Greenspan notes, is to "the world’s competitive disadvantage."
