(Source)

Paul Volcker, Barrack Obama’s economic advisor, joined the queue of critics on the so-called Quantitative Easing 2 (QE2), saying its effect has been “overestimated” and will not make a “dramatic difference” to the U.S. economy.

Speaking to reporters and policymakers in Seoul, Volcker said the decision by the U.S. Federal Reserve to inject $600 billion (664 trillion won) of stimulus money into the U.S. economy won’t achieve what it aims to do.

“In my view, the main responsibility of the Fed is to make sure the dollar is stable,” Volcker said in a morning lecture held at the Lotte Hotel in Seoul, Friday.

“It (the Fed) certainly hopes there will be some support for the U.S. economy. But I don’t think the action will make a dramatic difference,” he told reporters afterward.

Volcker is now the chairman of the Economic Recovery Advisory Board of the Obama administration. He was the chairman of the Fed, the central bank of the United States, from 1979 to 1987.

At 83, he spoke slowly and occasionally complained about hearing problems. But he was still more than a head taller than most other people in the lecture hall and his message was clear.

Volcker said that he understands the Fed has no other choice but to print money because there is little room for other monetary policy options given that the interest rate is already close to zero.

He said that the QE2 won’t be very effective because people already know that the action will bring long-term inflation, so that this perception will negate much of the short-term stimulus effect.

He also said that he was surprised to see the hype regarding the “currency war” and QE2.

“The notion of a currency war is very much overdone,” he said. As for the QE2, he said it is a “well advertised act” by Ben Bernanke, the current Fed chairman.

Volcker proposed the ‘Volcker Rule’ to Obama after the financial crisis. The main idea of the rule is to ban commercial banks from acting like hedge funds. He is also credited as saying that the “only useful banking innovation was the invention of the ATM.”

On Wednesday, the Federal Reserve led by Chairman Ben Bernanke finally announced the much-anticipated monetary easing known as QE2. The fed said it will buy government bonds worth $600 billion over six months to help revitalize the sluggish U.S. economy.