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The following article was published in our article directory on September 21, 2010.
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Big Changes in the Federal Reserve

Article Category: Business

Author Name: xia zihui

American joke, the Federal Reserve in news reports, the frequency, and the weather as much. While not figure out why the Fed, like figure out the weather changes, but dare to give it supreme authority. This is probably the most subtlety of the current description of the Federal Reserve.

The Fed is living in a historic transformation: an unprecedented expansion of its power, at the same time, using all the tools of monetary policy, "non-traditional", as new weapons, some effectiveness in practice, verification, and bring the necessary development of other weapons; the effectiveness of some weapons has yet to be verified; the future is still unknown, but immeasurable influence.

Fed has shrunk. 2007, the portfolio is only a simple 800 billion U.S. dollars, and a small amount of U.S. Treasury bonds and other securities, and now, from the species to the scale of earth-shaking. Brian Sack, vice president of the New York Fed said the image of the previous statistics published balance sheet, H.4.1 have from 4 into 12 pages. Federal Reserve assets also expanded to 2.25 trillion U.S. dollars.

Fed Gladiator

Brian Sack has 40 years of age, but this young star has been likened to the Fed's Gladiator, but he has to tame the lion, is the Fed huge "new" assets: real estate support to bonds.

Creation of these tools is half the battle on how to correctly use is the other half.

Summarized the Fed's quantitative easing, the first half mainly through the numerous instruments of monetary policy for the bank, "injection" targets successfully reached this step, the Federal Reserve credit expansion at the peak of 1.5 trillion dollars, to February 2009 have been reduced to 160 000 000 000 dollars. Many tools in February 2009 due smoothly off the ground.

Half is a large-scale asset purchase, the main objectives are very clear, that is lowering interest rates to be effective in stimulating economic activity in the. However, the implementation of these innovative instruments of monetary policy can not be without negative effects, the key is how the Fed can control these effects, weakening.

For China, not only learn the meaning of learning, but also follow-up impact analysis is correct or not monetary policy, the key.

Lowered interest rates with large asset purchase, how can the Fed do this? Is simple: size. As long as the Fed bought assets in large-scale acquired securities relative to the size of the market size is large enough, especially for real estate-backed securities. The Fed is doing.

But to buy these securities, the traditional trade flow is unilateral, the Fed's move will undoubtedly re-engineering the dynamic equilibrium of the market. For example, if you are a trader, knowing the Fed will take over some of the Quanzhong large, you may not rush shots, in exchange for liquidity, which become up for grabs.

This is just one example, when dinosaurs walked from the forest, it is difficult to measure the extent of casualties in the end, is also difficult to measure the full range of possible large-scale purchase of the role of assets. Although already demonstrated a long-term interest rates down effect. Aug. 10 the Fed announced support bonds to buy U.S. real estate debt, the Aug. 12 week, where mortgage rates immediately fell by 50 basis points.

Brian Sack has estimated assets with a large-scale push to buy at least a 10-year Treasury rate by 50 basis points, the impact on real estate loan rates will be higher.

In addition, as the consequences of pre-bailout, the U.S. banks reserve unprecedented scale of the billions of dollars from the original soaring to over one trillion U.S. dollars, which is why the Fed tightening continuing research, although the arms of the assets of an expanded Table.

Therefore, it is the Fed's excess reserve interest rate as its monetary policy point of tools is an important control tool for short-term interest rates. If the excess reserve continued to expand, the Fed probably has the need for other tools.

Followed him, is a challenge: how to avoid the experience of the market place so that no misunderstanding?

There is no doubt that the Fed will follow up a lot of tools to conduct sophisticated testing, but the market is well cultivated will be misunderstood as the monetary policy shift. As Jackson Hole conference, like the impression the Fed running out of tricks.

Eight new powers

Many people may remember the financial crisis, the United States had a "super financial regulator" of the motion; six months later, Obama signed the 2300's financial regulatory reform bill, the financial crisis during the former "super regulator" to move to be thrown aside, the Federal Reserve new regulatory power gained. Bernanke, the history of the United States the most powerful Fed chairman.

U.S. President Barack Obama on July 21 signed a U.S. financial services regulatory bill, the Federal Reserve have eight new power: at least 500 billion in assets, and the importance of the U.S. system of financial institutions have set capital requirements; of these institutions annual stress test to determine that they can deal with new financial crisis; approval of their "living wills", so that their assets after the crisis can be successfully sold; take over the OTS (Thrift Holding Company) of the existing responsibilities; Consumer Protection Office is responsible for financial institutions; bank-to-business decision on the debit card rates are; to help run financial stability Committee.

Change the situation for Bernanke, former Fed officials, the current term of office Potomac Research Group Gramley, senior economic consultants the most appropriate description: "Many people have blamed Bernanke, do not trust Bernanke, because the sub-prime crisis brewing He did not notice. but in a disaster-type crisis in the latter part, Bernanke's efforts to reverse the critical situation, in my book, he is a hero. "

Until January 2010, Bernanke only 70:30 of the vote the Senate re-election, this is the United States Senate in 1978 approved the establishment of system of the chairperson of the lowest of the vote.

But in the ensuing regulatory reform, the Federal Reserve has won any single regulatory body has never before seen power.

In particular, the present, he oversaw 5,000 U.S. banks and 830 state owned sector banks. Control law also gives the Fed a "systemically important" bank loans and risk of power. In the list that includes Goldman Sachs, Morgan Stanley. Meanwhile, the Fed has access to power to control the 440 savings institution holding company, and the importance with the system's non-bank financial institutions are meant for power, including: the largest U.S. insurers, Buffett of Berkshire Hathaway owned companies, and GE's financial sector.

However, comparison of U.S. monetary policy system and other global monetary policy system will quickly find that today's Fed and the last century is beyond 50 years, the pressures and challenges it is accompanied by the expansion of power and assets to expand. At that time, the dollar share almost 100% of U.S. dollar assets, but today, 45 trillion U.S. dollars, the United States only 19%, while Japan, the European Union, China occupies 1 / 5 scale. How to keep the other 4 / 5 dollar orders for the initiative, the Fed and Bernanke did show a very high creative and execution, but the sheer size of the U.S. bond market - a total of 5.8 trillion U.S. dollars of outstanding accounts, of which 4 The repayment period of more than one trillion U.S. dollars a year, in order to affect long-term interest rates take a great effort. In addition, the world is an acceleration tendency to spread to investment, if the old creditor as generous as before, that the Federal Reserve to fill the vacancies? In this time of change in the future where to go, we can only wait and see.

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