U.S. needs to be prudent with QE withdrawal

Email|Print|Comments       twitter     facebook     Sina Microblog     reddit    

U.S. non-farm payroll numbers for August will be revealed on Friday. The single most important data release in the economic calendar is widely seen as a key factor that would help determine the fate of quantitative easing (QE) in the country.

Being the world's largest economy and issuer of a key global reserve currency, the United States has an unshirkable responsibility to consider the negative consequences of a hasty end to monetary loosening.

The Federal Reserve, by rolling out three rounds of QE, has pumped enormous liquidity into world markets, with the emerging economies heavily flooded.

A sudden withdrawal would probably leave some emerging markets in tatters as capital will quickly flow back to the United States to seek profit.

In fact, even no final decision has been announced, some of the world's economies, notably the emerging markets, have seen their stock markets tumble, their currencies lose value against the U.S. dollar and hot money flee.

According to data from Bloomberg, more than one trillion dollars have been erased in the stock markets of the emerging economies since May. Meanwhile, currencies in India, Indonesia, Brazil, South Africa, Malaysia, Thailand, Turkey and others were so hammered that it seems that another round of financial crisis is well in the making.

If these economies fall apart, risks that the world economy would be knocked back into recession would pile up exponentially, and the not-so-solid recovery in the United States would very likely be a flash in the pan.

At the on-going Group of 20 (G20) summit in the Russian city of St. Petersburg, the leaders of major emerging economies have already voiced their concerns over the possible QE termination, and demanded the Obama administration be prudent with it.

Therefore, it is highly advised that the Federal Reserve take the spillover effect of its decisions into serious consideration, including the timing and pace of withdrawal from QE.

Moreover, it is also necessary for Washington to coordinate its future plans with other governments which have also taken similar monetary policies when the international financial crisis first struck in 2007.

Today, the global economy still faces uncertainties. At this delicate moment, a sudden and reckless termination of QE operations is perhaps the most injudicious act of all because in this age of global economic interdependence the soundness of the U.S. economy is highly connected with the health of other economies, and no country should expect to be exempt from another economic tsunami.

• FX purchases decline on signs of US QE easing
• Commentary: China capable of handling impact of U.S. QE exit
• U.S. exit from QE not to have negative consequences on S. Korea: Moody's
• S.Korea picks QE, weak yen as top uncertainties

We Recommend

• Mountain of garbage in Nairobi
• Highlights of MAKS 2013 Int'l Aviation and Space Show
• 10th China-ASEAN Expo opens in Nanning
• Eagle Boy takes to sky to break another record
• 12-year-old boy becomes pillar of the family
• Eye-gouged boy receives blind rehabilitation in Shanxi
• Top 10 naked hotels in the world
• The most gorgeous Chinese women in the eyes of foreigners
• A collection of bizarre rooftop buildings around China