Last week, Ben Bernanke suggested that the US base interest rate will stay close to zero for an "extended period". It’s been there since December 2008.
Traders took these words to mean that the Federal Reserve won’t hike rates until the first few months of 2012 at the earliest.
Bernanke also pledged to do whatever is required to keep America’s economic recovery on track – confirming that the second programme of "quantitative easing", or QE2, would be completed. These two related announcements – the "reprieve" and the "sugar rush" – sent Wall Street into renewed spasms of synthetic joy.
In the real world, US growth is slowing sharply. Annualised GDP rose just 1.8pc during the first three months of 2011, down from 3.1pc the quarter before. America remains mired in sovereign, commercial and household debt.
Yet as the Fed chairman spoke, US stocks hit their highest level since before the sub-prime crisis. The tech-heavy Nasdaq, incredibly, closed at a 10-year peak.
So the Fed will keep on "printing" virtual money – at least for now. By the end of June, it will have purchased $600bn (£363bn) of longer-term Treasuries, with the US government effectively buying its own debt from funds created ex nihilo. That’s on top of the original $1,750bn (£1,048bn) QE scheme, launched in late 2008.
America’s base money supply – the bedrock of the world’s reserve currency – has doubled in little more than two years. Despite consternation among many US voters, and dismay – rapidly turning to anger – across the world, most of America’s political elite refuse even to debate QE. Such is the state of democracy in the "land of the free and the home of the brave". And America is not alone.
Bernanke’s utterances caused gold to jump another 2pc. Silver – known as "poor man’s gold", another "inflation hedge" – spiked 6.5pc. But the real story was the plunging dollar. Against a basket of five major global currencies, the US currency fell sharply and is now at its weakest since July 2008. The Fed’s "real broad dollar index", a 26-currency composite and adjusted for inflation, is testing levels not seen since 1979.
Yet still Tim Geithner puffed-out his chest and reaffirmed America’s "strong dollar" commitment. "Our policy has been, and will always be, as long as I’m in this job, that a strong dollar is in America’s interest," the US treasury secretary said.
That’s total nonsense, of course – seeing as a weaker currency boosts US exports and lowers the value of America’s external debt. Geithner’s words are not only disingenuous, but insulting to America’s creditors and trading partners. In fact, Washington’s constant berating of Beijing for "currency manipulation" is looking more and more like a diversion tactic.
That’s a big statement, I know. But it’s based on a dispassionate analysis of the facts. I have no personal beef with America. I’ve spent a sizeable chunk of my life in America and much of my family is American. I love America! I feel the need to write this as quite a few US economists, even those boasting Nobel prizes, have recently accused analysts who don’t toe the "Washington line" of being "America-haters".
Such ad hominem tactics are pathetic – the last refuge of intellectual cowards who know they’re losing the argument. For the "Washington line" – inflation isn’t a problem, we don’t need to raise rates and the Fed can print willy-nilly – is not only looking increasingly untenable, but is having a severe negative impact on much of the rest of the world.
