US Stimulus Goes Overseas

The other morning, Erin Burnett of CNBC said on "Morning Joe" that Bernanke and the Fed had generated about 20% of additional cash, but the economy had grown only about 2%. The implication is that the quantitative easing is not working. So where did the money go?

Businessweek last week said:

Federal Reserve Chairman Ben Bernanke has tried everything to feed the U.S. economy the liquidity it needs to revive. In the process, he has conjured up more than $1 trillion of fresh monetary stimulus out of thin air. Inevitably, much of it has ventured overseas in search of yield. The big beneficiaries have been the stock markets of the emerging-market economies.

So while Bernanke is pumping out cash, the main beneficiaries are sending that cash overseas to emerging markets. That is a problem with a concentration of wealth. The very rich, who are the main recipients of the cash, are not investing or spending in America. They are investing overseas. This tends to drive down the dollar, which offends the other countries, whose currencies are driven up, thus making their exports more expensive and harder to sell, etc. It will be an issue at the upcoming G-20 meeting.

If the rich were loyal Americans, like those running corporations for a generation after World War II, Bernanke's largess would stay in the US and benefit Americans, not Chinese, Indians and Brazilians.