WASHINGTON (AP) -- The Federal Reserve's plan to buy more Treasury
bonds has incited critics at home to complain of inevitable high
inflation and financial turmoil.

It turns out many foreigners are pretty angry, too. They say the Fed's
$600 billion program is a scheme to give U.S. exporters an unfair edge
-- one that endangers the global economy.

Is it? Or is the Fed's plan a credible way to help end a desperate
jobs crisis and revitalize a still-tepid economy?

In either case, few dispute that Fed Chairman Ben Bernanke is taking a
gamble. Whether or not his plan succeeds in aiding the U.S. economy,
it risks triggering a trade war and encouraging dangerous speculation
in financial markets.

Already, the finger-pointing threatens to wreck this week's summit of
world leaders in Seoul, where the Fed's plan has set off vociferous
debate. President Barack Obama on Thursday was forced to defend U.S.
policies at the summit, saying "the most important thing that the
United States can do for the world economy is to grow."

Many economists say the Fed didn't have much choice -- not with U.S.
unemployment stalled at 9.6 percent, short-term interest rates already
near zero and Congress refusing to spend more to jolt the economy.

"They've run out of bullets," says Uri Dadush, director of the
international economics program at the Carnegie Endowment for
International Peace.

So the Fed announced plans to print enough money to buy an average of
$75 billion in Treasury bonds each month for eight months. And it left
the door open for more. The bond-purchase program is intended to
energize the economy by forcing down long-term interest rates. Those
lower rates might encourage some consumers and businesses to borrow
and spend more.

Will the Fed's program do that?

Not likely, its critics say. For one thing, mortgage rates have
already dipped to record lows without reviving the housing market,
reducing high unemployment or stimulating much growth. Would people
and businesses that can't or won't borrow now at super-low rates start
borrowing if interest rates on loans dip a bit more -- and borrow
enough to rejuvenate the economy?

A bigger hope is that lower rates will lift stock prices. That's
because, as Bernanke has suggested, investors will shift money out of
low-yielding bonds and into stocks. Higher stock prices make people
feel wealthier -- and more willing to spend.

Business leaders are no different. They become more confident when
their personal wealth rises and when their company's stock goes up.
They're more likely to hire and expand. Once they do, the economy
strengthens.

Yet the Fed's move threatens to inflame global tensions. That's
because of what happens when it prints more dollars to lower interest
rates: More dollars flooding the financial system will cause the
dollar's value to fall. That will make U.S. products cheaper around
the world. It will also make foreign goods costlier in the United
States. Americans will be less likely to buy foreign products.

Economies like Germany and China, which have ridden a wave of exports
out of the recession, complain that the Fed's main goal is to lower
the dollar's value to give U.S. exporters an unfair price advantage.
They call the move hypocritical because Washington has long complained
that Beijing keeps its currency, the yuan, artificially low to boost
Chinese exports.

In September, the U.S. trade deficit with China amounted to $27.8
billion. That's just short of August's record high. And it exceeds the
U.S. trade gap with the rest of the world combined.

Critics also warn that rates kept too low for too long could inflate
new bubbles in the prices of commodities, stocks and other assets.
That's what happened before with technology stocks and home prices.
Developing countries like Thailand and Indonesia fear that falling
yields on Treasuries will send money flooding their way in search of
higher returns. Such emerging markets could be left vulnerable to a
crash if investors later decide to pull out and move their money
elsewhere.

China this week unveiled plans to limit the inflow of so-called hot
money. Other countries are considering similar controls on capital.

U.S. stocks have been surging and the dollar sliding since Bernanke
said in a speech in Jackson Hole, Wyo., in late August that the Fed
was ready to act further to help the U.S. economy. The Dow Jones
industrial average has jumped nearly 14 percent. And the dollar has
sunk more than 7 percent against the euro and more than 2 percent
against the Japanese yen.

"For the rest of the world, the benefits are tenuous, but the risks
are hitting them right in the face," Eswar Prasad, professor of trade
policy at Cornell University, says of the Fed's bond-purchase program.

The acrimony over currencies and trade reflects global pressures that
might be hitting a breaking point. For too long, many economists say,
China, Germany and other big exporters have depended on U.S.
consumers, instead of their own, to buy their goods and power their
economies.

A weaker dollar "topples their entire strategy of relying on exports
rather than internal reforms to fix the problems that ail them," says
Diane Swonk, chief economist at Mesirow Financial.

Joseph Gagnon, a former Fed official and now senior fellow at the
Peterson Institute for International Economics, calls the charge that
the U.S. is manipulating the dollar "outrageous." He notes that China
and other exporting nations have been buying dollars and each other's
currencies to keep their own artificially low - a tactic the U.S.
hasn't taken.

"We unilaterally disarmed," Gagnon says.

The U.S. trade deficit -- the amount by which the value of imports
exceeds the value of exports -- narrowed 5 percent in September, to
$44 billion. But through the first nine months of 2010, the trade gap
is still running 40 percent higher than it was a year earlier.

And the broadest measure of trade -- the current account trade deficit
-- will reach 3.2 percent of U.S. gross domestic product in 2010, up
from 2.7 percent in 2009, TD Economics forecasts. The current account
gap includes not only goods and services but also investment flows
between countries. By contrast, TD expects current account surpluses
of 4.7 percent of economic output in China and 6.1 percent in Germany.

China said this week that its trade surplus with the world rose in
October to its second-highest level this year. That performance is
likely to heighten pressure on Beijing to raise the value of the yuan
as the Group of 20 summit of world leaders begins. A higher yuan would
make U.S. goods cheaper for Chinese consumers to buy.

Carnegie's Dadush warns that individual countries must solve problems
in their own economies, rather than point fingers at each other's. He
says U.S. lawmakers should pass a short-term spending plan to jolt the
economy, instead of leaning on a Fed program that could rattle world
markets.

Then they should draft a long-term plan to shrink the federal budget
deficit. The leaders of President Barack Obama's bipartisan deficit
commission weighed in Wednesday: They proposed to pare annual cost-of-
living increases for Social Security, gradually raise the retirement
age to 69 and end some popular tax breaks like the mortgage interest
deduction.

Dadush says China should let the yuan rise, to encourage its consumers
to spend. China might then rely less on exports and more on its own
consumption to fuel its growth.

Yet he fears countries will be tempted instead to further rig their
currencies and impose barriers to imports.

"I've been watching trade for 35, 40 years," Dadush says. "I'm more
worried about a protectionist resurgence than I've been in my
professional lifetime."