The currency wars have been started globally, and combined with a low-growth environment, the consequences are likely to be dire, according to an op-ed written by economist Noriel Roubini in the Guardian. With Japan’s announcement that it is going to rev up its quantitative easing strategy, there is concern about the devaluation of its currency, which is causing other countries, such as China, South Korea and Singapore, to devalue their own currencies. European countries are likely to follow suit, with the result that the dollar may soar compared to other currencies. The problem with this is that U.S. companies that trade abroad will be at a disadvantage if the dollar is too high. Roubini thinks the Federal Reserve is likely to delay raising interest rates if the dollar goes up too much, which creates problems for banks.
Roubini thinks monetary policy has been the quick fix solution to deal with debt and low growth. He is critical of Japan’s tax hike, which may have prevented a recovery and austerity measures adopted by Germany, which has crippled consumer spending.
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Roubini thinks the optimal solution would have been, “less fiscal consolidation in the short run and more investment in productive infrastructure, combined with a more credible commitment to medium and long term financial adjustment and less aggressive monetary easing.”