In the Wall Street Journal today, Stanford’s Ronald McKinnon argues against the Federal Reserve’s policy of cutting interest rates to almost nothing, and debasing our currency, in a short-term effort to pump up consumer spending by favoring debtors. Instead, he argues, “there is a strong case for raising the fed funds rate as much as is necessary to strengthen the dollar in the foreign exchanges” to prevent the flight of capital abroad.
International investors have denounced the Fed’s easy money policy more pungently, saying it will prove very costly to America in the long run. Julius Baer, a Swiss Bank that made plenty of money for its American investors over the last several years, observed that “the Fed has shirked many of its responsibilities: by allowing asset bubbles to form unfettered; by maintaining ultra-lax monetary policies; . . . and, by succumbing easily to the faintest political pressure,” signs of what it called “The Age of Decadence” in its 2007 Annual Report.