The Fed Is Playing with Fire

Published in People
(China) on 18 December 2008
by Yang Mu (link to originallink to original)
Translated from by Caroline Moreno. Edited by Sonia Mladin.
Whether the U.S. Federal Reserve Board can turn the US. economy around by greatly reducing interest rates and adopting “unorthodox methods" is yet to be known. However, these measures have significant risks: the return of inflation, government interference in the independence of the Fed, and the Fed may suffer loan losses.

According to Hong Kong's Wenweipo, “unorthodox methods” means that the Fed will play the role of the final borrower and will inject funds into the market on a large scale using innovative financial tools. In other words, the Fed will fully exercise its function as a “money printer.”

Yet a large-scale injection of funds would increase the Fed’s debt, which could lead to the markets being inundated with U.S. dollars, thereby devaluing the dollar. Devaluation of the dollar might benefit the U.S. economy on some level. Yet from a global market standpoint, it would certainly intensify the blow the financial crisis is dealing to other economic entities, and it would cause other countries to lose their confidence in American investments.

The U.S. economic recession is severe, and the Fed is taking the most radical action in the history of the U.S. Central Bank — Federal Reserve Board Chairman, Ben Bernanke, is putting all his eggs in one basket by reducing the interest rate to almost zero, and exhausting all other options.

London's “Daily Telegraph” pointed out that if the global economy really can recover through these measures, then the U.S. government will have to quickly raise interest rates. Otherwise, after the recession and deflation have passed, an inflation storm will occur. Inflation would be a negative factor, eroding the dollar’s value. RBS Greenwich Capital chief international strategist, Alan Ruskin, noted that the Fed is truly playing with fire.


人民网北京12月18日讯 美国联储局大手减息,再加上采用“非传统手段”,美国经济能否扭转局势仍是未知数,但措施的风险绝不容忽视,包括通胀重临,独立的联储局受政治干预,以及联储局会蒙受贷款损失。

  据香港文汇报报道,所谓“非传统手段”,即在未来一段时间,联储局将充分发挥“最终借款人”的角色,通过创新融资工具,大幅向市场注资。换言之,联储局将充分发挥手中“印钞机”的功能。

  但大幅注资将加剧联储局的资产负债,并可能导致市场上美元泛滥并造成美元贬值。美元贬值或许在一定程度上有利美国经济,但从全球市场看,势必加剧受金融危机冲击的其它经济体的困境,并使其它国家失去投资美国的信心。

  美国经济衰退严峻,联储局日前作了美国央行历来最激进的行动,主席伯南克孤注一掷,将所有减息弹药用尽,利率减至近乎零。

  英国《每日邮报》指出,如果全球经济真的能因而复苏,美国政府必须快快加息,否则衰退和通缩过后便是通胀狂飙。这对美元来说是个不利因素,因为通货膨胀会侵蚀美元价值。RBS Greenwich Capital首席国际策略师罗斯金表示,联储局实际上是在与狼共舞。

(责任编辑:杨牧)
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1 COMMENT

  1. this is not a recession but a decline of wealth for a nation.

    it has been occuring for over 40 years.

    some americans work two and three jobs to try and maintain their standard of living and even that approach is running out of steam.

    it is the end of an era in america.

    maybe it will slow america’s desire for wars for profits and desire to maintain a mega military budget.

    americans have become imperialists and dont have a clue they are.

    the price of imperialism is high. we are now experienceing the high cost of imperialism.

    ie economic decline for a nation.

    politicans wont tell americans it is a decline of wealth they want to get elected.

    americans would kill the person delivering the message. it is called denial and americans have it big time. used to being a superpower cant give it up. ego thing.