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The following article was published in our article directory on November 8, 2010.
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QE does not help solve the real problems the U.S. economy

Article Category: Business

Author Name: Amanda xzh

The Fed last week, started the second round of the quantitative easing policy, announced that U.S. Treasury bonds to buy 600 billion U.S. dollars, do you think the Fed move? Quantitative easing, the Fed will have what impact the global market? China, India, Australia and other countries represented by the central bank, the global economy has taken some initiatives to raise interest rates, to see how such a policy difference?

Federal Reserve to make decisions based on the U.S. domestic situation, but the dollar is the world's dollars. The inside story on the introduction of the second round of U.S. quantitative easing policy, the problem will output to the rest of the world, especially in the countries holding large dollar reserves, and their currencies pegged to the dollar how much some of the country. After the second round of quantitative easing, the world's overall situation is indeed very complicated.

It is conceivable that quantitative easing policy of the Fed's main emerging market economies. Heart of the problem is not the mere fact that a weaker dollar, but the countries in global trade weakened the competitiveness of the consequences. In addition, a weak dollar and low U.S. interest rates will lead to hot money flows to emerging markets. This problem is very serious. This is also the policy of many countries, the reasons for the implementation of monetary intervention, capital controls in some countries altogether, limiting excessive capital inflows.

The Fed used to promote U.S. economic growth of quantitative easing policy, it is probably not the right tool, but perhaps the Fed and the U.S. government now had to do. If you look at the real problem the U.S. economy where you will find, that is actually not so much with interest rates. They need to see clearly what is stuck to the bank from the Federal Reserve System creates money transmission mechanism of credit creation - why companies have a lot of cash, but they are not investing, why the banking system has a lot of money, not lending, or high lending interest rates?

Although the Fed introduced the quantitative easing to create a very easy monetary conditions, but to solve the current problems the U.S. is not the remedy, in particular, especially from a global perspective. Fed should be considered, it will do what the impact around the world. Of course, this also shows that cooperation is a priority of national policy.

The summit with the previous G20 G20 summit different. Before the global economy is in recession among the nations economy into the abyss, we share a common goal, namely, how to solve the depression problem. And the G20 summit further complicate the situation, not a common theme and goal, the participating countries have their own problems to be solved. Different levels of national economic recovery in emerging market economies, the growth rate is much faster than in developed countries, debt is relatively small, the manufacturing industry well.

This means that the G20 summit in difficult to reach a common solution. If you are looking forward to this meeting in South Korea out what programs like feat, then you will be disappointed. But if you see it as national political dialogue, economic issues important to seek to establish a mechanism to promote common solutions, then it makes sense.

G20 summit in Seoul, may make the parties reach a consensus to the international economic system and monetary system, what kind of correction to make, and how to adjust or reform. For example, the establishment of credits between countries, which play a role in the crisis of credit instruments. Frankly, because of the current differences and conflicts between countries, the results might not so satisfactory. You know, the biggest key is to achieve national consensus on how to cooperate with each other, but this is not clear, we do not know how to do it.

Now the world knows that China's strong economic strength, China and the U.S. are economic power, but the exchange rate issue is not as simple as black and white issue. Perhaps the U.S. Congress this plausible, but the problem now is that the U.S. can not create jobs, to criticize China's exchange rate is U.S. politicians to the public expression of "our difficulties," the line of least resistance - so long as the employment downturn in the U.S. blame China enough. Accused China of not correspond to reality.

But this is only the U.S. domestic political debate, I do not think the issue will appear in an international conference.

G20 summit in London last year we published before the report pointed out that sub-G20 summit meeting should be held, inviting U.S. dollar, euro, yen, yuan and other representatives of the world's major currencies, held a special meeting. Although China is still non-convertible currency, but the Chinese economy in the world that has been very important.

These economies, currency exchange rate issue should be discussed, to discuss the burden of adjustment, and find a way, or bear the burden of adjustment in the United States or the European commitment, etc., and the meeting is to ensure that all countries engage in devaluation of competition. If countries deal with properly, is likely to dispute. We were made to avoid competitive devaluation of national currencies and to avoid trade protectionism are all very critical challenge. Year and a half later, we still hope that all countries work closely together to solve some problems to be solved.

First of all, the phenomena of global imbalances have a deeper root. For example, current account imbalances, not just the U.S. financial system problem. It also exposed the "normal" business behavior has ceased to exist - the price of risk is systematically undervalued, which involves a lot of problems.

Second, global imbalances in Europe and the United States led to high unemployment problem, which lead to monetary and trade friction.

Third, there is a risk that the future will be a sharp depreciation of U.S. dollar, which is no small thing.

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