You hear rumours of protectionism and currency wars. They pop up every few days and then they subside. Washington wants China to revalue its currency, the Yuan. It wants its major trading partners to limit their trade surpluses with the U.S. Then Washington announces plans to print 600-billion dollars worth of magical money to buy back government debt. Nations are getting angry and they're all quick to point fingers.
German finance minister, Wolfgang Schauble, isn't pulling any punches: "The German export successes are not the result of some sort of currency manipulation, but of the increased competitiveness of companies. The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America's problems, but they don't include German export surpluses."
Herr Schauble is right, the U.S. has lived on borrowed money, trillions of dollars of money borrowed from foreign lenders, since Reagan ushered in America's Age of Ruin. America turned its back on manufacturing, opting instead for an insane, short term, high-yield FIRE (finance/insurance/real estate) economy that was bound to undermine its economic strength and stability. Vast wealth accrued to America's top 10% while the remaining 90% worked ever harder to simply tread water or fall behind.
Now America is going out and simply printing 600-billion dollars worth of non-existent wealth and that's alarming the world. But America has a rich, recent history of forays into non-existent or fictitious wealth. The Savings & Loan scam was non-existent wealth, the Dot.Com bubble was mainly non-existent wealth, Enron and Worldcom too, and most recently it was the housing bubble and trillions of dollars of credit default swaps backed by completely non-existent wealth. This time, instead of Wall Street or American banks pulling the non-existent wealth scam on the American people, it's Washington giving its foreign lenders a taste of the same medicine.
America, the great believer in free trade and free market economies, is now yelling "uncle" - "Uncle Sam" that is.
No one knows how this one is going to play out. Inventing $600-billion dollars is a gutsy move, especially when you know what it could mean to your economy in the long term if your foreign benefactors dump the greenback as the world's reserve currency. This is one to keep an eye on.