Tag Archives: Stimulus

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!

Leave a comment

Filed under News, Politics

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.


Filed under News, Politics

What Does the IMF Say About QE2?

IMFCurrently, there is speculation with regard to whether or not the quantitative easing or QE2, the Federal Reserve Bank’s next round of stimulus and decision to resume purchases of government securities, will help re-start the U.S. Economy.  Several arguments for and against another round of quantitative easing ranging from what the U.S. needs to complete economic disaster.  According to the International Monetary Fund (IMF) in a report entitled World Economic Outlook of October 2010:

Monetary policy should remain accommodative because of muted inflation, subpar growth, and lingering financial strain. The Fed has maintained the policy rate at a record low while signaling that conditions are likely to warrant keeping the rate at exceptionally low levels for an extended period. In light of larger downside risks, the Fed’s recent decision to resume its purchases of government securities (using resources from maturing government-sponsored-enterprise debt and mortgage-backed securities in its portfolio) is appropriate. In the event that such risks materialize,  policy responses could include a strengthened commitment to maintaining the ultra-low policy rate for an extended period, expanding asset purchases, and relaunching facilities to aid stressed markets. Meanwhile, the Fed has been developing a well-diversified toolkit for managing monetary conditions, which will help facilitate monetary exit when needed.

Although the uncertainty is somewhat frightening for most Americans, there are plenty of arguments against fiscal austerity before the U.S. is clearly on a  sign of recovering from the recession, the main being that it could derail any hope for recovery by contracting GDP and raising unemployment.  And coupled with what many economists argue along with the IMF position in support of quantitative easing, it is apparent with the stagnant economy and high level unemployment that stimulus is badly needed.  For the fiscal austerity movement, once the economy improves sometime in 2011, we can immediately begin austerity measures to bring the national debt under control, but only upon clear signal that the U.S. economy is recovered.

1 Comment

Filed under News, Politics