Skip to main content
Canada’s most-awarded newsroom for a reason
Enjoy unlimited digital access
$1.99
per week
for 24 weeks
Canada’s most-awarded newsroom for a reason
$1.99
per week
for 24 weeks
// //

U.S. Federal Reserve Chairman Ben Bernanke pauses during remarks about a shift in the direction of U.S. monetary policy at the Federal Reserve in Washington September 13, 2012.

JONATHAN ERNST/Reuters

No matter how hard the Fed pushes, the U.S. economy isn't going to respond to yet another round of quantitative easing. What ails the U.S. economy is not the cost of credit. From car loans to mortgages, borrowing money has never been cheaper.

The Fed's aim to stir the economy by printing more money is off the mark. Certainly boosting the money supply will have an affect, but it won't be on domestic spending, as hoped, but on exports. Ben Bernanke's explicit promise to keep interest rates at record low levels until at least 2015 will further devalue the U.S. dollar, thereby boosting the competitiveness of American exporters. That will be helpful, but keep in mind that exports are a relatively small component of the U.S. economy. The Fed would need to see truly phenomenal trade gains to achieve the results it seeks for GDP growth, let alone employment gains.

It's an unlikely scenario given today's weakening global economic environment. Moreover, the resulting currency appreciation against the U.S. dollar among America's major trading partners will only exacerbate their own economic problems, while also dampening their appetite for American-made goods.

Story continues below advertisement

So what's the harm in the Fed trying? Inflation is the traditional argument against central banks turning on the printing presses. Whether widespread price increases will take hold this time around remains to be seen. There is, however, at least one price that another round of quantitative easing is bound to send higher–the cost of oil.

Since oil prices are denominated in U.S. dollars, the lower the value of the greenback, the higher the price of oil. What's more, any policy that is seen to boost economic growth is immediately bullish for oil prices. Note the knee jerk reaction for oil prices following the Fed's policy announcement last week. The price of Brent crude, the de facto world price, hit a four-month high, while the price of West Texas Intermediate was pushed near $100 (U.S.) a barrel.

Oil traders may be wrong in believing that another round of quantitative easing will have any more lasting an impact on economic growth than previous rounds. But traders are absolutely right in recognizing that any increase in economic growth will boost the demand for oil, and hence its price.

We can't grow our economies without burning more oil, but the growth we seek will eventually push the price of the fuel out of our economy's reach. That, in a nutshell, is the quandary central banks are now facing. Unfortunately for the Fed, it's about to learn once again that no amount of monetary stimulus is going to change that basic constraint on economic growth.

Jeff Rubin is an author and former chief economist of CIBC World Markets. His second book is The End of Growth. Read more from Jeff Rubin on his Globe and Mail page.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies