American Leadership, or Not

Many countries believe the Fed's recent round of quantitative easing is designed to depress the value of the U.S. dollar relative to other countries, and thereby to increase American exports by making goods produced in America cheaper in foreign currency terms.

This had led to much outrage expressed by international leaders, with Brazilian leaders saying the U.S. is engaged in a "currency war." Germany's Finance Minister Wolfgang Schaueble not only thinks QE2 is bad policy but says it violates the Obama administration's international commitments. Schaueble said: "These huge economic problems cannot be solved with more debt. That was the joint policy all developed nations, even the United States, agreed on at the G20 summit in Toronto."

Schaueble went on to say the United States should follow Germany's example of how to deal with the financial crisis - in which Germany cut government spending!

And how does Barack Obama feel about the Fed's QE2 policy in light of this international criticism of American policy? He supports the Fed's actions.

The U.S. dollar has a unique role in the world economy as the global reserve currency. Many nations (through their central banks holding most of their foreign currency reserves in dollars) and individuals look to the dollar as the ultimate safe store of value; the dollar is the currency used to price many commodities (such as oil); and is the benchmark for setting interest rates.

Having the global reserve currency provides the United States great financial flexibility. For decades, China and Japan have been sending America products that fill our homes, and in returns we have been sending them dollars that fill their central bank reserves. It also allows the federal government to run huge deficits and confidently believe it can easily borrow the money to support such debts.

However, the price for having the reserve currency is that the United States has a global responsibility to manage our financial affairs in a prudent manner. Huge budget deficits, a housing-led financial crisis, and debasing the dollar through QE2 all contradict the required prudence.

This is why there is such international outrage directed at the United States, for understandable reasons.

What do we need to address this problem? Stop QE2, cut government spending dramatically to reduce the budget deficit, approve the free trade agreements with South Korea and other nations that the Democrats have stalled for several years, and implement policies that promote economic growth through lowering tax rates and reducing regulatory burdens such as ObamaCare.

Solutions exist which can improve the economy, ease international tension, and restore American leadership to the world. Unfortunately, Barack Obama is not the man for such a job.