Today at his blog Krugman writes:
China has experienced a very large real appreciation since 2011, partly due to higher inflation than in its trading partners, partly because its dollar peg means that it has tagged along with the rising dollar (which was supposed to plunge due to QE, but never mind)…
In other words, Krugman was ridiculing those who had warned that QE would depreciate the dollar.
OK here’s the chart:
The dollar clearly fell in November 2010 with the start of QE2, it clearly strengthened once QE2 ended, and it strengthened sharply once QE3 began tapering off.
Yes, the dollar in absolute terms against other currencies was bolstered since 2008 because people are panicked and rushed into US Treasuries, but the notion that the dollar’s current strength refutes the people warning about QE is misleading at best. The above chart makes perfect sense with the people saying QE would lower the dollar, except for the period of QE3 where the Fed’s balance sheet grew rapidly while the dollar stayed in a tight range.
Incidentally, you know which economist came out and said QE2 had “worked” partially through weakening the dollar? You get one guess.