Prudent Withdrawal

The end of the monetary stimulus shows that the U.S. foresees a solid recovery.

Federal Reserve Chairman Ben Bernanke, who as pointed out by U.S. President Barack Obama is a candidate who will soon step down, announced on Wednesday that the exceptional measures of the monetary stimulus of the economy, that which so considerably differentiates the U.S. from Europe, will be withdrawn gradually if the economy improves. By mid-2014, the rounds of quantitative easing could be history. The Fed had already given enough signs that the withdrawal was relatively close and, therefore, Bernanke made the foreseeable evolution public with extreme care and enough time. But the global markets, stocks and debt, including gold, have not been able to withstand the anxiety and have plummeted. Aided, of course, by the spread of a bad result for the Chinese Purchasing Managers Index, interpreted almost unanimously as proof that the Chinese government is about to restrict the flow of credit.

Is this concern justified or is it a nervous overreaction from the markets? Well, there is more of the latter than the former. Bernanke warned on repeated occasions that the plan to maintain federal fund rates at almost null levels and the purchase of bonds — no less than $85 billion a month — is conditioned on the economy recovering its growth path and the unemployment rate dropping below 6.5 percent. Well, the unemployment rate has been falling in an obvious manner — though without significant increases in wage income — and growth projections are satisfactory.

For the global economy, the signs of U.S. recovery should be more valuable than momentary uncertainty in the stocks and debt markets. The stock market losses and the rise of sovereign debt spreads reveal more vulnerability in some markets, such as Europe, than real uncertainty about overcoming stagnation. But in Europe, the fatal connection between peripheral countries’ public debt and [Europe]’s banking systems still has not been broken. One can analyze it in another way, one more paradoxical: Less monetary stimulus in the U.S. can put an end to penalizing Europe’s delay and clumsiness, and prolong apathy and elevated unemployment and, with them, financial instability.