Wednesday, September 29, 2010

Ambrose Evans-Pritchard: Shut Down The Fed

On UK Telegraph: Shut Down the Fed (Part II)

  • ......... We have a very odd world. The IMF has doubled its global growth forecast to 4.5pc this year, and authorities everywhere have ruled out a serious risk of a double dip recession.

    Yet at the same time the Bank of Japan has embarked on unsterilised currency intervention, which amounts to stimulus, and both the Fed and the Bank of England are signalling fresh QE.

    You can’t have it both ways. If the US is not in deep trouble, the Fed should not be thinking of extra QE. It should step back and let the economy heal itself, if necessary enduring several years of poor growth to purge excess leverage.

    Yes, U6 unemployment is 16.7pc. But as dissenters at the Minneapolis Fed remind us, you cannot solve a structural unemployment crisis with loose money.

    Fed is trying to conjure away the hangover from the last binge (which Greenspan/Bernanke caused, let us not forget), as if to vindicate its prior claim that you can always clean up painlessly after asset bubbles.

    Are the Chinese right? Are the Americans and the British now so decadent that they will refuse to take their punishment, opting to default on their debts by stealth?

    Sooner or later we may learn what the Fed’s hawkish bloc of Fisher, Lacker, Plosser, Hoenig, Warsh, and Kocherlakota really think about this latest lurch into monetary la la land, with all that it implies for moral hazard and debt contracts.


pica said...

Don't forget we (Malaysians as represented by GOM) threw a temper tantrum and refused to bite the bullet during the Asian Financial Crisis.
Isn't it why Mahathir imposed capital controls etc because he wanted to avoid:
1. social upheaval from unemployment arising from the recession
2. losing UEM/Plus to foreign bondholders
3. hurting his cronies?
The root cause was being addicted to cheap finance (which led to financing long term liabilities with short term loans).
So it's happened to all of us (ie GOM, BNM, SC, KLSE) before, and will probably happen again.