Back in the day, the euro was worth about $1.20. Now, it’s poised to be worth $1.41. Federal Reserve Chairman Ben Bernanke announced that since the first and second rounds of qualitative easing have failed, a third round is in order:
“The comments from Bernanke and Fitch amount to a double whammy for the dollar and a boost for the euro and riskier assets. It’s all positive for risk,” said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.
The Fed ended its most recent asset-purchase program in June. Traders said that another round of easing would flood the financial system with more money and encourage investors to reach for higher-yielding currencies and assets.
There’s something to be said for “If at first you don’t succeed, try, try again”, but the reality is that inflating the dollar away does not help our struggling economy. Senior citizens and others with savings will lose the purchasing power of their limited assets. Families on tight budgets will be hurt even more, as the price of gasoline will invariably rise. (Approximately 49% of our petroleum is imported – or rather, in 2008, approximately 49% of our petroleum was imported, a number which has surely risen as offshore drilling has been shut down in the Gulf.) Higher gas prices mean less spending – which we’ve already seen after QEI and QEII.
I facetiously asked what this will do to the price of Champagne (answer: increase it about 20%), but this will do all sorts of bad things to the price of all goods. Gasoline goes up, so everything will go up: energy is part of the cost of production. Imported goods will cost more, which means less money for retailers. We all weep crocodile tears for those whose Veuve Cliquot habit will be a bit more expensive, but that means fewer jobs for family-owned liquor stores, fewer college kids who can make a few dollars and get some experience working as cashiers. We get a lot of produce and commodities from overseas (ex. avocados, coffee), which will go up in price – more than they already have.
Thanks, Bernanke. We really need this right now.