Beware of the cheapening US money

From a land of opportunity and optimism to a land of pessimism, Americas transition to an anaemic-growth zone is a painful story.
Despite having pumped trillions of dollars by providing liquidity to nervous financial markets and by buying government bonds and mortgage-backed securities, the quantitative easing still appears a bit too little.
Though the US economy is now out of the recession it was in two years ago, growth in GDP is still not strong enough to employ more and more people. Output growth is also below its historical trend, analysts at the Standard Chartered Bank (SCB) point out.
The US unemployment, currently at 9.6 percent, is actually five percentage points higher than it was before the crisis. There are also concerns over the disturbingly low inflation amid growing fears of deflation.
In an attempt to deal with these economic headwinds, the US Federal Reserve is expected to pump more money into the system; the Feds open market committee is due to meet later today, but the markets, reportedly, have already priced in the move.
Analysts at SCB expect the Fed to announce an open-ended programme, which will leave markets uncertain about its eventual size and duration. But "with QE2 largely priced in, the initial announcement could meet with disappointment," wrote SCB earlier this week.
The duration of this quantitative easing is expected to be driven by how long it takes the economy to overcome the current headwinds as consumers de-leverage and the fiscal stimulus reverses..
The continuation of this unbounded and open-ended programme might force the dollar to lose 20 percent of its value over the next few years, according to Bill Gross, the manager of the worlds largest mutual fund, PIMCO.
A weaker currency, it is hoped, will help the American economy by boosting exports. But, at the same time, continued monetary easing in the US might fuel the global commodity price hike further while facilitating bubbles in emerging economies. Now thats a costly proposition - one which isn seen working too well for America anyways.
"With many households unable to borrow, others keen to pay down debt, and many businesses swimming in cash, lower interest rates are likely to have only a modest effect," cautions The Economist.
The answer, therefore, lies in fiscal reforms, in the absence of which, the US economy is a "fiscal train wreck" waiting to happen, according to Nouriel Roubini of the Roubini Global Economics. Roubini warns that further quantitative easing will have little effect on US growth in 2011, "so fiscal policy should be doing some of the lifting to prevent a double dip recession."
But with the fiscal deficit already burgeoning, President Obama has little room for another fiscal stimulus unless he decides to cut pension and health care benefits, according to The Economist.
Since that might mean a voter backlash - one he clearly can afford at the moment - one can expect US monetary easing to keep jacking up commodity prices, including food, fuel and gold, over the next few months. Lord help the struggling, import-dependant economies.