Germany's finance minister is arguing that the Federal Reserve's move to pump money into the financial system increases uncertainty in the global economy and undermines the credibility of the U.S., the German weekly Der Spiegel reported Saturday.
The Fed on Wednesday confirmed that it will buy $600 billion of long-term government bonds by mid-2011 in an attempt to further drive down rates on mortgages and other debt in the hope of getting lending higher.
Germany is focusing on cutting its budget deficit in the aftermath of the global economic crisis, and other European countries also are cutting back following this year's eurozone debt crisis.
"I have great doubts as to whether it makes sense to pump unlimited money into the markets," Finance Minister Wolfgang Schaeuble, a vocal critic of the decision, was quoted as telling Der Spiegel.
"The U.S. central bank's decisions increase uncertainty in the global economy," he added, according to the report. "They complicate a sensible balance between industrial and emerging countries and they undermine the financial policy credibility of the U.S.A."
Some governments worry the Fed's tactic, which will lower interest rates and is known as quantitative easing, might push up their currencies' exchange rates, hurting exports by making their goods more expensive.
"It doesn't fit together if the Americans accuse the Chinese of exchange rate manipulation and then artificially push the dollar rate lower with the help of their bill printer," Schaeuble was quoted as saying.
Germany's strong recovery this year was led by exports, but Schaeuble argued that his country's surpluses aren't one of the "many reasons" for America's problems.
The U.S. "lived too long on tick, excessively inflated its financial sector and neglected its medium-sized industrial business," he argued.
Back in Europe, Germany is leading a push for a permanent crisis-resolution mechanism for the eurozone which would involve private bondholders — not just taxpayers — sharing the cost of financial rescues.
Schaeuble said he envisions a two-step process, with the span of bonds from a troubled country first being extended as it works to reform its finances. If that doesn't help, creditors could then take a markdown on their holdings.
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