"The
decision by the Federal Reserve to release another $600 billion into
circulation by the middle of next year could be a very expensive proposition
for Brazil. … The U.S. exports its crisis to the rest of the world, rather than
contributing to the overall global recovery."
FED Chairman Ben Bernanke: His decision to approve QEII - not the ship but the second massive money printing operation under his watch, has markets on edge.
The decision by the Federal
Reserve (FED, the U.S. central bank) to release another $600 billion into
circulation by the middle of next year could be a very expensive proposition
for Brazil. The plan is to issue approximately $75 billion per month in one
more push to revive the U.S. economy, the activity of which remains at a low
ebb and with unemployment above 9 percent. In exchange for this money, the FED
will buy federal bonds held by the public. Dollars will continue flooding the markets
and force a revaluation of Brazil's real and other currencies. Brazilian manufacturers
will have greater difficulty not only with exports, but also with competing on
the domestic market, because their currency is already one of the most overvalued
in the world. The Chinese will continue to take advantage of a majority of their
competitors because they'll find a way to keep the yuan undervalued, but perhaps
a little less than before just to show some good will.
The goal of the FED,
according to the official explanation, is to stimulate lending to stimulate consumer
consumption and ramp up production. Everybody roots for the recovery of the
American economy, the most important in the world, but not everyone applauds U.S.
monetary policy because of its effects on the global exchange market. In
practice, the U.S. exports its crisis to the rest of the world, rather than
contributing to the overall global recovery.
The FED had already indicated
its willingness to issue additional currency. It would be its second major
operation of this type. The only surprise was the amount, because analysts had
bet on $500 billion. With basic interest rates at between zero and 0.25 percent
per year since December 2008, the scope for action by the FED was extremely
limited. Little or nothing was left than to throw more dollars into the market.
Posted
by WORLDMEETS.US
Critics of the U.S. policy
like [Brazilian Finance] Minister Guido Mantega and some of his European
colleagues have advocated another solution. It would be better, according to
his rationale, to continue resorting to fiscal stimulus to revive consumption
and production in the United States. The classic menu could include more public
investment, which is a direct and efficient way of creating jobs and promote
equipment manufacturing and mining industries.
President Barack Obama's
electoral defeat in the midterm elections was bad news for those who hoped for
a solution of this kind. The big winners were the most conservative elements of
the Republican Party. They never came forward to stop the spending spree of President
George W. Bush, which was responsible for the devastation in the public
accounts. Containing federal spending was, however, one of Obama's main goals
in the campaign that just ended.
When the crisis worsened in
the third quarter of 2008, the U.S. federal budget was already in poor
condition. New expenditures were made to combat the recession. For some time,
this policy seemed to deliver some results. But the economy started to falter
again and now needs one more good push.
Any new fiscal stimulus
program presented by the Executive will almost certainly confront strong
resistance in Congress. The Republicans won a majority in the House of Representatives
and the Democratic advantage in the Senate is smaller. President Obama will find
it more difficult to negotiate new anti-recession packages.
Posted
by WORLDMEETS.US
This has been, at least, the
most common assessment from analysts. If correct, the U.S. economy will depend
almost entirely on monetary easing to gain some momentum. Nothing guarantees
this outcome. A policy of public spending would be much more reliable,
especially if it's directed toward investment.
As for trade policy, it will hardly
be influenced by the election results. Republicans tend to be less protectionist
than Democrats, but everyone, for quite some time, will try to protect domestic
production. The slower the recovery, the more lasting the tendency to closing off
trade will be. There's no immediate prospect for major positive news.
