US Federal Reserve is Sabotaging the World

By Shlomo Maital

   Warning: Boring blog about the dollar, the Fed and interest rates.

   OK.  The US Federal Reserve has done it again.  Stuck its finger in the eyes of other countries.  Raised interest rates again by 0.75%, to 4%.  Mortgage rates will climb to 7%.  Banks will see their profits soar.  The dollar will rise again against other currencies. Other foreign central banks will have to raise their interest rates too, or see money flee their country.

   So what’s the problem?  The US has inflation. The only tool they have to fight it, is interest rates, right?  The dollar is America’s money. America has the right to do whatever the heck it wishes with its money and interest rates.


   Here is why.  A bit of history.  In July 1944, at Bretton Woods, NH, Hotel Mt. Washington, the Allies convened experts (Keynes, among them) to rethink the architecture of the post WWII economy.  Keynes wanted a global Central Bank – one that would control world credit and interest rates,  to preserve the interests of all the nations of the Free World.    But the US, whose economy at the time was 75% of the world economy (ravaged by war), refused.

     The US delegate,  Harry Dexter White, said, no, we don’t want or need a world currency. The DOLLAR will be the world currency.

     And some experts innocently asked, hmmm.  But…what if US interests and non-US interests diverge? What then?  

     No answer.

     Today they are diverging.  Europe’s economy is stumbling,  Africa is hungry and struggling; Ghana, for instance, a normally well-run nation, has seen its currency collapse.  Ghana can’t afford to borrow money at interest rates that the US is driving.  The IMF has to do a bailout.  Other African nations wait in line.

     The high US interest rates have driven the US dollar very high against other currencies.  This means, imported goods priced in dollars become expensive for Europe, Africa and my country Israel. (Israel’s shekel is 3.5 to the dollar, way down from 3.15 just a while ago).  This means the US Fed is exporting its inflation to other nations, through their higher import prices.

     I have argued that killing the US economy with impossibly expensive credit is really dumb.  Don’t believe me.  Ask Nobel Laureate Paul Krugman, Nobel laureate.  Dumb!  Not only dumb but wicked. Because other nations are paying the price of a dumb US mistake.

     This is not how the leader of the free world should behave.  History will give Jerome Powell a D- grade.  He was appointed to a second four-year term as Chairman of the Federal Reserve Board of Governors on May 23, 2022.  By President Biden.  A very bad mistake.