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Wednesday
Nov172010

More Harm than Good: Republican Leaders Voice Fears Over Fed Plan

Photo Courtesy - Getty Images(WASHINGTON) -- Republican leaders in the House and Senate Wednesday voiced concerns about the Federal Reserve’s new $600-billion monetary stimulus plan, known as “QE2”, short for “quantitative easing.”

In a letter to Fed chairman Ben Bernanke, top Senate Republicans Mitch McConnell and Jon Kyl and top House Republicans John Boehner and Eric Cantor said the plan creates “significant uncertainty” about the strength of the dollar, “impairs U.S. trade relations,” and “erodes confidence in the economic outlook.”

“While intended to improve the short-term growth of the U.S. economy and help maintain a stable price level, such a measure introduces significant uncertainty regarding the future strength of the dollar and could result both in hard-to-control, long-term inflation and potentially generate artificial asset bubbles that could cause further economic disruptions,” the GOP lawmakers wrote to Bernanke.

Noting that the plan has already “generated increased criticism and action from other central banks and governments,” the lawmakers warned, “any action taken by our nation or foreign nations that impairs U.S. trade relations at a time when we should be fighting global trade protection measures will only further harm the global economy and could delay recovery in the United States.”

The GOP lawmakers are only the latest in a growing chorus of criticism against the central bank’s program. Countries such as China and Russia initially voiced concerns about the plan, followed swiftly by a wide range of Republicans.

Bernanke recently made the case for the program in an opinion piece published in the Washington Post, explaining that the new money -- injected into the economy through a program which will buy up Treasury bonds during the next eight months -- can reduce borrowing costs for American consumers and businesses, while also lowering interest payments for people and businesses with lots of money in savings. The Fed boss deflected fears that the plan would result in higher inflation as “overstated.”

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