Web Wealth: What Europe's big stimulus means for us
Europe is far off, but the European Central Bank's decision to infuse money into the Eurozone via so-called quantitative easing will hit us all in the pocketbook, one way or another. Here's how:
Europe is far off, but the European Central Bank's decision to infuse money into the Eurozone via so-called quantitative easing will hit us all in the pocketbook, one way or another. Here's how:
"Even if you don't live in Europe, this matters," says this post and video clip at Money.CNN.com. The markets' initial reactions were positive. Among other things, "the ECB's announcement showed investors that Europe may finally be serious about repairing its many economic problems. That should help contain the negative spillover to the U.S.," the post says. Meanwhile, the sliding value of the euro poses some problems and benefits for the United States. "The plunge in the euro could hurt the revenue and profits of big U.S. firms with exposure in Europe," even as "that Roman holiday you've been longing to take? Now's probably the time."
"The easing may do more harm than good," ForeignPolicy.com said in an article posted just before the ECB announced its action Thursday. "After all, big and bold QE programs have had mixed results in the United States, Britain, and Japan. They have artificially inflated asset prices, but scarcely encouraged consumers to spend or businesses to invest." For Europe, the magazine said, "QE may have its biggest impact on growth and inflation by weakening the currency, making exports cheaper and imports pricier."
The Financial Times, at ft.com, takes up the currency issue with an article out of London titled "Why ECB action is likely to stoke global currency wars." In a currency war, nations seek trade advantages by lowering the comparative value of their own money. "A lower euro will boost exports and, crucially, lift inflation. If it looks as if the ECB has increased the hostility of a global currency war, there is a good reason: it has."
There's a lot of debate about whether Europe's steps will keep the U.S. Federal Reserve from increasing interest rates later this year. Rex Nutting, a commentary editor at MarketWatch.com, says it won't. Citing economists at Goldman Sachs, Nutting says they argue that "if the dollar is strong because the economy is strong, there's little reason for the Fed to be overly concerned." . . . "Remember, one of the reasons for the rise in the dollar is the perception that the U.S. economy is getting better, turbocharged by falling energy prices. And aggressive QE in Europe and Japan, insofar as it's successful, would remove some of the downside risk to the U.S. economy from having weak trading partners."
How do Europeans view their economy and the new stimulus effort? The Brussels-based EUObserver.com calls this a "last-ditch attempt."