Tag Archives: Quantitative Easing

G20 Leaders Promise to Deliver

G20 Seoul Summit 2010Following the G20 Summit in Seoul, Republic of Korea, G20 Leaders reassured the world with “what we promise, we will deliver,”  in reference to the commitments that were made during the summit.  Although the commencement of the G20 Summit began with stalled negotiations between the United States and Republic of Korea over a free trade agreement between the respective countries which was followed with an all out verbal war over currency exchange and quantitative easing, a verbal war that threatened to undermine the credibility of the G20, the G20 Leaders closed the summit and agreed to develop common views to meet new challenges and a path to a sustainable and balanced growth in the post-crisis economy.  The G20 Summit in Seoul delivered an action plan that was composed of comprehensive, cooperative and country-specific policy actions to move them closer to shared objectives, concerning: the Mutual Assessment Process (MAP); implementation of structural reforms that increase sustainable global demand; fostering job creation and increasing the potential for sustainable growth; undertaking of macroeconomic policies, including fiscal consolidation where necessary; providing instruments to strengthen global financial safety nets; and an Anti-Corruption Action Plan, among other objectives.

Upcoming summits were scheduled for 2011 in France and 2012 in Mexico.

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Developing Economies Owed No Explanation To Fed QE2 at G20

A recent article in BBC News entitled China, Germany and South Africa criticise US stimulus reports that China, Germany, Brazil and South Africa have criticized the Fed plan to pump $600bn into the United States Economy in an effort to kickstart growth.  Further reported is that China’s Central Bank head Zhou Xiaochuan has "urged global currency reforms."  If this is the case, the China’s Central Bank head should allow the Chinese Yuan Remnibi to appreciate to its full value, as many economists believe the yuan is undervalued anywhere from 20 to 50%!  Therefore, America’s position at the G20 should concur with China’s Central Bank head recommendation, beginning with currency reforms in China.

Interestingly enough, Bloomberg goes on to report in`Hell Week’ Ends With Central Banks Split on Recovery Policies:

China’s Vice Foreign Minister Cui Tiankai yesterday demanded an explanation from the Fed because “many countries are worried about the impact of the policy on their economies.” Brazilian Finance Minister Guido Mantega said this week that Bernanke is throwing “money from a helicopter.”

If the Fed is throwing money from a helicopter, then China’s Central Bank by deliberately pegging the yuan to the dollar in times of need and then allowing it to float during times they determine safe coupled with Brazil taking advantage during the exchange rate crisis of 2008 is parallel to the Chinese and Brazilian Central Banks committing "highway robbery."

China and Brazil are hardly  in positions to complain about the Fed QE2 while their economies enjoy nearly 10 and 8% growth rates while the United States is not even at 3%.  Bloomberg further reports that:

[E]merging markets account for a third of the global economy, yet two thirds of its growth. Keen to maintain that advantage, officials from Asia to Latin America prepared for stronger currencies and asset-price inflation as they criticized the Fed’s policy for pushing a flood of capital into their already robust economies.

Apparently, as long as emerging markets maintain their advantage of trade surpluses while the U.S. suffers from severe trade imbalances due to manipulated currencies, all is "hunky dory."  But heaven forbid the U.S. try to place its people back to work by stimulating an anemic economy because to do so, emerging markets like China hypocritically state "[i]t would be appropriate for someone to step forward and give us an explanation, otherwise international confidence in the recovery and growth of the global economy might be hurt."  The global economy or China’s economy?

Here are some important facts for the United States to consider at the G20 meeting in Seoul:

China’s GDP grew from 1.2 trillion in 2000 to 4.3 trillion in 2008, which is close to 300% growth. For the same period U.S. GDP grew from 9.7 trillion to 14.2 trillion, which is 45% increase.

U.S. trade deficit with China grew from $125 Billion in 2003 to 270 Billion in 2008. Foreign direct investment in China grew from $38 billion in 2000 to $138 Billion in 2008, a 250% increase. Per capita income increased from $2330 in 2000 to $6020 in 2008. China has a stable political environment since 1990. China’s foreign reserve increased from $623 Billion in January 2005 to $2.3 trillion in September 2009. All the economic factors indicate that Chinese Yuan value should strengthen and leads us to believe, that had it not been pegged to U.S. Dollar, the Chinese Yuan would have appreciated.

Developing economies are owed no explanation to Fed QE2 at the G20 summit in Seoul.  The U.S. position should be that Central Banks who encourage currency reforms while experiencing near double-digit growth in large part due to manipulated currency creating enormous trade imbalances begin with a "balancing act."

Explanation indeed!

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Fed Announces Further Stimulus: $600bn Government Bond Purchase

Federal Reserve BankThe United States Federal Reserve Bank (Fed) has announced it will purchase an additional 600bn USD of government bonds as a means of quantitative easing to lower the cost of borrowing, which totals 2.3tn USD or 1/6  of American GDP that has been injected into the economy since the recession.   The Fed will implement set amount in quantitative easing and stimulus through the end of June, 2011, which averages to 75bn USD per month, a sum that is greater than what some economists expected. Interestingly, leading economists views are still split between quantitative easing hurting the U.S. economy by causing an elevated inflation rate over time to the opposite where 600bn USD as not nearly being enough to stimulate the weakened economy.

Unfortunately, whether the additional quantitative easing has a desired effect on the economy as planned by the Fed will greatly influence President Barack Obama’s chance at reelection in 2012.  After last evening’s results at the 2010 Election, America’s discontent was visible through the changed panorama of both houses of Congress and a number of state Gubernatorial seats.  Whether this changed panorama of U.S. politics and the announced austerity plans of the Republicans in Washington will greatly impact the desired outcome of the Fed stimulus plan remains to be seen as many economists warn that austerity measures implemented prior to entering a strong recovery could send the U.S. economy into a double-dip recession.

Stay tuned!

Or, watch the video at BBC News.


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