The US Federal Reserve’s announcement last week that it will buy $600 billion of government bonds might work to stave off deflation in America, but our readers aren’t so sure that it will benefit Asia’s emerging economies.
In our web poll last week, most respondents reckoned that Ben Bernanke’s second round of quantitative easing will do more harm than good. Germany’s finance minister would certainly agree. Wolfgang Schaeuble described the plan last week as “clueless”, arguing that America’s economy isn’t in trouble because the government hasn’t pumped enough liquidity into the market.
He wasn’t alone in attacking the plan. Henrique Meirelles, head of Brazil’s central bank, said that hot money flowing out of the US was creating “risks for everyone” and several prominent US economists are reportedly launching a campaign this week to get Bernanke’s plan shelved. Joseph Stiglitz, a Nobel prize-winning economist, spoke at a real estate conference in Hong Kong last week and joined the chorus of critics, arguing that America was stealing growth from other countries.
The policy also takes America’s spat with China into the realm of the bizarre, with both sides guilty of the same thing they are accusing each other of. “It’s inconsistent for the Americans to accuse the Chinese of manipulating exchange rates and then to artificially depress the dollar exchange rate by printing money,” said Schaeuble in an interview with Der Spiegel.
Asia’s fear is that America’s printing presses will contribute to asset bubbles and inflation in the region, though the criticism of the Fed has now become so widespread that some question whether the central bank will even be able to carry out the full $600 billion bond-buying programme.
Overall, 71% of our readers said that QE2 will not help Asia’s emerging economies, while the remaining 29% reckoned it would be positive.
Photo provided by AFP.