from the editors of the Wall Street Journal, Emerging Market Rip Tide:

The destabilizing effect of QE threatens global growth at a moment when none of the major economies is firing on all cylinders. By encouraging overinvestment in developing countries, it may have created new deflationary pressures. China built massive steel-making capacity that will now drive down the global price and lead to protectionist pressure in the U.S. This dislocation and wasted investment should make policy makers reconsider their faith in the power of monetary policy to stimulate growth, and put the emphasis back on pro-market reforms.

There has often been a tension between the Fed’s roles as regulator of the U.S. domestic economy and custodian of the world’s reserve currency. The QE era shows what happens when it ignores the latter responsibility. Bond-buying allowed the U.S. to pump up asset values, even as it has failed to stimulate the real economy.

U.S. presidential candidates have been quick to jump on China’s recent small devaluation as proof of currency manipulation aimed at stealing American jobs. The irony is that the Federal Reserve has been guilty of the biggest currency whipsaw the world has ever seen. And it has beggared its neighbors in the process.

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