Bernake will have more international opponents to its policy

Comments on Karen Maley “Bernanke's inflated rhetoric”, 7/02/2011, http://www.businessspectator.com.au/bs.nsf/Article/Bernankes-inflated-rhetoric-pd20110207-DTS77?OpenDocument&src=rot

I think international monetary game is not played just between the two largest economies, namely the US and China.

The US can use loose monetary policy as a tool to try to export its domestic economic problems.

China can use nearly fixed exchange rate to counter or neutralise this effectively competitive devaluation.

For China, while inflation can pose a serious problem, its effects can be partially offset by rapid wage increases, albeit it will be a double edged sword for even higher or persistent inflation in the future.

So the end result in terms of the relative competitiveness between the two countries does not change much.

But the effects will be felt by the US and China in terms longer term inflation in both countries.

Further, any countries with flexible exchange rates can feel the effects of low $US and the rmb on their economic growth, even though they may have a problem with deflation as opposed to inflation.

Rising commodity price is inevitable, as a means of international adjustment to income realignment as a result of the rise of large emerging economies and their rise demand for almost everything.

How that income realignment will affect the international economic structure and employment is yet to be seen.

It may be that the unemployment will be persistently high in the US for some time to come. That, through its impact of its fiscal affairs, can further erode the international competitiveness of its other industries.