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Opinion: Is 3rd round of Quantitative Easing coming?

By Ding Yifan (Guangming Daily)

08:47, October 09, 2011

Edited and Translated by People's Daily Online

The U.S. Federal Reserve had a meeting in Washington in August when officials of the International Monetary Fund and the World Bank were also having meetings there. The whole world turned their eyes to whether the Fed chairman Ben Bernanke would announce a decision about initiating the third round of Quantitative Easing monetary policy.

The American stock market fell after Bernanke said nothing about the monetary easing measure. Fortunately, he added that there would probably be more tools to utilize to help the poor economic performance of the United States. His words led to another round of stock rebound at Wall Street. The Fed needs to hold a lot of meetings in the future, and whether and when the third round of quantitative easing will be introduced has become an important subject touching nerves of tens of millions of investors.

Quantitative easing means that the Fed directly buys government treasury bonds issued by the Treasury Department, and announces purchase quantity and speed in advance. The Fed is the central bank of the United States, and the move that the central bank buys treasury bonds from the Treasury Department is called "printing money" in Western economics textbooks.

Both economics theory and historic facts have taught us that printing paper money may, ultimately, trigger inflation. Dollar is the currency for pricing international bulk commodities, and it would depreciate if there were a large circulation, which would lead to rise of international bulk commodity prices. Economists in the United States have already warned of the side effects of more monetary easing polices by the Fed.

They said that the United States could have higher inflationary expectations so as to deal with economic recession, and that the Fed should not set the inflation target at 3 present.

In the 1950s and 1960s, the West Europe and Japan accumulated a lot of U.S. dollars by exporting products. In the beginning of the 1970s, the United States found that its gold reserve was already not enough to deal with the U.S. dollars held by countries of the West Europe and Japan. Therefore, the Nixon Administration decided to default and closed the window of exchanging the U.S. dollar into the gold. Then, the U.S. dollar depreciated greatly and an inflation impacted the West Europe and Japan's economies. The countries of the West Europe not only suffered great losses but also had to suffer elevated inflation caused by the U.S. dollar. Therefore, they came to the U.S. Treasury Secretary John Connally to complain. But Connally said, coldly, that, the U.S. dollar was "our currency but the problem was your problem". The cold words made them not able to say anything. That is why they made so many efforts to launch the euro.


Leave your comment4 comments

  1. Name

jack Smith, USA at 2011-10-1124.26.135.*
The rich who run the U.S. will do anything to keep themselves afloat on easy money at the expense of everyone else. They"ve sold out their own country and will not hesitate to cheat the Chinese people. The rich in America should be exterminated like the parasites they are. Jack Smith, USA
PD User at 2011-10-1081.13.250.*
MONETARIST CENTRAL BANKERS ARE LIARS: Did the quadrillion $ liquidity's that Wall street created from nothing create hyper-inflation? NO! (Google: quadrillion $ derivatives) Did the 100 trillions JPY cash that the bank of Japan created from nothing create hyper-inflation? NO! (Google in pictures: global narrow money supply) Did the trillion $ cash the FED created from nothing in 2008 create hyper-inflation in 2011? NO! Did 20 years of falling financial costs to 0% in Japan create hyper-inflation? NO! The only pragmatic way to create hyper-inflation was to inflate financial costs to 21%, as Paul Adolph Volcker did 1981, pretending it would reduce consumer price index, but, of course, the contrary happened! (Supermarkets has financial costs that customers must pay) You see that all monetarists dogmas are false! Keynes did not say: QE1 and QE2 must be used by bankers for inflating cereal prices, starving 46 millions jobless homeless US peoples, and killing millions poor African peoples! Keynes said: central banks must directly create millions new jobs, paid with just printed money, and this will NOT create hyper-inflation!
Wang DZ at 2011-10-10173.254.192.*
How many tens if of hundreds of billions have Beijing lost us in the U.S., Greece, Portugal and Spain? Why are the news medias and China"s economists and NGOs mum on this question? If they are fearful or just plain self preserving, it is clear their days will also be numbered. We will have to turn to independent sources on the internet to find the truth and the facts.
helen at 2011-10-09175.136.169.*
The US government is at a loss as to how to arrest the continuing decline of its economy. Speeches by US leaders are mere electioneering promises. Nothing concrete will come out of it once their 'TV elections' are over. There is no political will to resolve their mess. Vested interests and astronomical wasteful military expenditures are just some of their main hurdles.With time rapidly running out, the US government sincerely believes that their only way and easy solution is to continue printing money. QE3 and more QEs must follow for economic recovery and preventing massive chaos and instability in the US. Just as the United Kingdom has done so recently again and for much the same reasons although at a lesser scale.All this money printing will make nonsense of all those nations who export oil, commodities, manufactured goods, services .... to the United States and those countries who continue to maintain their foreign reserves in US$ (purchases of US Treasuries).A cheaper Weimar US$ can easily take care of the US debts.The United States already know that they could not maintain much longer the US$ as the World Reserve Currency. Thus depreciating the US$ is the logical choice and conclusion. And China will continue to see the value of its foreign reserves dwindling into oblivion if it persists in 'Riding the Weimar US$ Tiger' and Chinese leaders will have to answer to the Chinese people.Already other nations are selling off their US Treasuries and diversifying into gold, commodities, resource acquisitions, baskets of currencies.... They are not waiting to be made fools of by the US government. The worry is not how many more QEs the US government going to make. This remains their sole preogative. The question is, are nations of the world protecting themselves and their peoples from the Weimar US$ in the months and years to come?

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