The US is not Poland

Poland’s currency devaluation is evidence that monetary expansion works.

That sentence is too broad. I think it would be more accurate if it read, “Poland’s currency devaluation is evidence that monetary expansion works in small countries.

When the United States tries something like this, our trading partners take it on the chin. China and all of our trading partners will make a lot less money, because a weak dollar means less yuan, yen or Loonies for the foreign exporters.

Poland, Sweden and Israel are all small countries. When they devalue their currencies, no one attempts to match the move. This is why an expansionist monetary policy will do wonders in a small country, but it is more difficult to get a devaluation to stick with a large economy and major currency.

Let’s take the example of the euro. Two forces have been moderating what should be a collapse by now. The Swiss National Bank has bought several hundred million euro in order to keep the Swiss franc from strengthening further. Additionally, the People’s Bank of China has been buying more euros instead of dollars in an attempt to preserve the value of their largest export market, the Eurozone.

I think a loose monetary policy has a place in central bank strategy, but its should be limited in scope and time. Just enough should be done to forestall a liquidity crisis, and that’s it. Pull the plug and let the markets continue to do their job of price discovery.

https://dareconomics.wordpress.com/

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