The Launch of the QE2
I was on CCTV News BizAsia this morning, talking about the U.S. Federal Reserve’s plan to purchase up to $600 billion in U.S. Treasuries over the next few months, in order to inject more money into a sluggish domestic economy. Since the move marks the Fed’s second round of so-called “quantitative easing” since the global financial crisis began, it has been nicknamed “QE2” (like the ocean liner).
My comments were more descriptive of the reasons and risks inherent in the move, rather than arguing whether it will work or not. There are three seperate segments. In the first clip, I discuss Bernanke’s motivation (arising from his previous academic work on the causes of the Great Depression), along with the risk that, if he overshoots or gets the timing wrong, he could end up generating inflation. In the second clip, I evaluate fears that QE2 will fuel asset bubbles, both at home and abroad.
In the third and last interview clip, I talk about whether the Bank of England, the European Central Bank (ECB), or the Bank of Japan are likely to follow the Fed’s example, as well as the challenges the Fed’s latest move poses for emerging economies like India and China which are in the midst of trying to tame inflation. This Reuters report from the New York Times makes it clear those latter countries aren’t at all happy about it, and that opposition to QE2 is likely to take center stage at next week’s G-20 meeting. You can bet China is relieved that the G-20 will be howling about someone else’s currency for once (even though, in the end, they know that a falling dollar will rachet the pressure up even higher on China to abandon the peg and let the RMB rise on its own).