The case for allowing the dollar to decline is strong. Its fall is not just natural; it is helpful. Even though the US became a net exporter of steel in August for the first time in more than 50 years, that may not mean a continuing improvement in the trade deficit. Meanwhile the decline in Chinese trade slowed sharply in September. Investors should beware if the country does not rebalance its economy toward increased consumption.The social worth of investors comes into question, amid criticism that they, like bankers, are over-rewarded. The $140bn that Wall Street is expected to pay its staff this year is a record – and contrasts with the pay cuts for US production workers that provoke a comparison with Japan’s lost decade. Wall Street does indeed employ smart guys, but that is a big part of the problem. Although banking is an essential support function, it is extracting a very large toll relatively to its actual worth. Flaws in the financial sector’s structure promote fraud and corruption, undermine democracy and cause recurring crises. Its reputation will not be enhanced by research suggesting that one in five hedge fund managers misrepresented facts to investors.
Perhaps the banks are being unfairly criticised for making a profit: after all, we wanted them to get back on their feet. If they fail to increase lending, it will put the money markets under strain and undo the efforts of the central banks.
Although Britain is on a path back to growth, a “double-dip” recession remains a risk. The Bank of England points out that its quantitative easing policy should be judged by its success in reviving the economy, rather than whether the Bank makes a profit or loss. In defence of quantitative easing: its purpose is to inflate, not (necessarily) to monetise debt. But policymakers have another problem: they are handicapped by the lack of models with detailed descriptions of the credit transmission mechanism.