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QE2 to Expand the Global Monetary System Disorder By Lanbo Jiang

  in Business | Published 2012-01-12 05:49:48 | 113 Reads | Unrated


Recently, the US

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Recently, the U.S. Federal Reserve Open Market Committee (FOMC) announced the implementation of 600 billion U.S. dollars will again be the "quantitative easing" program (called the QE2), the Fed made money to buy long-term bonds issued by the Ministry of Finance, a monthly purchase amount 75 billion until the second quarter of 2011.

Different with the QE1, QE2 has been extensive criticism, and even scolded bond king Gross, it is "Ponzi scheme." Under the influence of the parties, QE2 to become more modest scale, like the spread of money, "the first of the aircraft" (Bernanke) of
convergence, but did not weaken his position, he still suggests QE2 is not the "end "Unless the market is expected to develop the implementation of Bernanke's inflation target so far.

QE2 will achieve what goals? The most direct, it will suppress the long-term interest rates, 600 billion QE2 about longer-term bonds will drive down interest rates 20 basis points. Now, data from a variety of changes, the United States government bonds under the market interest rates began to rise, Bernanke does not allow this situation occurs, QE2 will interrupt the momentum at the same time, Bernanke's hint will make the market aware , the Federal Reserve will keep interest rates continue to combat this "up-style natural return to the" process.

Long-term interest rates 20 basis points down on the U.S. economy help? For now, its U.S. real estate market and the purchase of a foreclosure is not big, too small benefits it provides. However, Bernanke believed in a "leveraging theory", the Fed dramatically purchase of bonds, forcing the market to accept low interest rates, market investors will increase the purchase of other assets - such as the strength of the stock, to construct a " artificial bull market, "the rise in the stock market will increase household wealth and consumer demand, which will stimulate economic growth.

Frankly, the situation facing Bernanke is strange, because "the equities bull market" and "real estate bear market," co-exist, the stock market wealth growth and the economic sector "to the debt of the" co-exist to speed up lever technology and "deleveraging" co-exist. This fact means that the wealth in a market growth is likely for another market, "debt repayment", while the side fill hole digging, the role of being offset.

But Bernanke stressed "QE2 to counter deflation" is untenable. Prior to that, the whole world filled with a "anti-deflation" flavor, with a "double dip" hypothesis. Deflation in Europe, the United States to have deflation. But in fact, if we look at changes in CPI, currently can not find the shadow of deflation. Inflation seems to rise in Europe; U.S. core CPI is slowly rising, with slightly longer time perspective, the level of 2% may be a lower limit. This fact means that, once the U.S. economy has entered a normal track, inflation will surprise zoom into jumping inflation. QE upon their banking system, large amounts of cash, they are hoarding, because lack of credit demand. Once a demand for industrial or economic sector to become the "leader", hoarding cash may be the promotion of mutual transmission type of credit, this is a bubble in the past the United States "forced copy", its risk is staggering.

QE is nothing more than the U.S. plan for negative interest rates with inflation (now a zero interest rate policy), let the dollar fall. This is equivalent to the U.S. to become a world awash with liquidity, exports, speculators get funds from the U.S. market and into emerging market countries, emerging market countries, the first reaction is capital controls. At the same time, emerging market countries will use other means to raise interest rates to face the problem of domestic inflation and demand inflation, asset price bubbles as limited as possible to stop hot money arbitrage. In fact, these acts against the United States policy has offset the effect, for emerging market countries have found that hot money arbitrage models are the "asset bubble benefit + the currency appreciation", if combat asset bubbles, will be shrinking domestic demand, then the United States from emerging market countries will not receive a substantial increase in export demand. Emerging market countries will not bear the international monetary system has been adjusted by the role of follower, they would not have tolerated the continuous depreciation of the dollar without taking following devaluation. In other words, the U.S. plan in addition to expanding the QE of the world monetary system disorder, the purely monetary benefit is limited, but its costs are severe abnormalities.



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