QE2 Almost a Foregone Conclusion Outside the Reserve Andhot Money Test China

The latest challenge to the QE2 from the president’s economic adviser, former Federal Reserve Chairman Paul Volcker, who said in the November 2, QE2 will have a significant impact on the economy, “Monetary policy may have been helpless.”

This week a number of global central banks monetary policy meeting will be held, despite the weak global economy, the recent trend showing again, but in response to the economic issues, emerging market countries are taking a completely opposite way with the United States.

November 2, Reserve Bank of India and Australia, respectively, the central bank to tighten credit by raising interest rates to the valve. And the recent central bank interest rates, they have expressed interest rates in response to domestic inflation pressures.

But perhaps one of the factors from the Federal Reserve. SG stationed in London Albert Edwards, global strategist told this reporter that massive monetary easing from the U.S. sent to China and other emerging markets, so China’s “accident” to raise interest rates to address this threat is not surprising .

Suba Rao, India’s central bank governor to express his concerns directly, “Although the developed economies of the ultra-loose policy may make interim benefit the global economy, but it will lead to short-term capital flows to emerging market economies, global commodity prices bring up the pressure. ”

“QE2 is just a dream”

Merrill Lynch head of global economic research is expected to Ethan Harris, the Federal Reserve in the November 3 meeting will be announced after the launch in the next 6 months, the acquisition of assets of 500 billion U.S. dollars project, or the acquisition of 100 billion U.S. dollars a month. At the same time clearly stated its interest in the resolution, if the economy is worsening, the Fed will adopt more measures next.

U.S. billionaire investor, “the king of bankruptcy,” Wilbur Ross United States this year, the Chinese Finance Association (TCFA) in this reporter during an interview, said, QE2 will buy more U.S. treasury bonds , but “no matter how much they buy, basically useless.”

Useless because the bank already holds 1 trillion in the hands of the excess reserves, but banks do not borrow the money out, “You give them to send hundreds of billions of dollars, they also do not take the money out.”

Ross that, QE2 will be two major effects, namely the dollar lower, “This may help the economy”; the other hand, due to lower interest rates, more people will apply for mortgage loans to refinance and increase consumption, but impact of this will be very limited.

Morgan Stanley Asia Chairman Stephen Roach told the newspaper reporter, 10-year and 30-year Treasury yield has dropped almost no space, and second thoughts, “even if the QE2 is successful, ten-year U.S. Treasury bill rate from the current level of about 2.5% to 2%, which can really boost the U.S. economy? I do not think so. ”

QE2 is just a dream, it is a huge mistake, did not succeed in Japan, QE1 in the United States did not succeed, QE2 also doomed to failure.

The United States did not learn from past crises in any lessons, the origin of this crisis is that Americans free to borrow money to buy houses contributing to the current crisis, “Now the Fed wants to do it again.”

Because Roach QE2 will not have any effect, he said, “QE2 may eventually become QE12”.

Diminished risk of China’s foreign reserve

Because the current bond interest rates already low, in addition to Morgan Stanley, all other respondents agreed that the next bond interest rates will start to rise, interest rates means that one bond bull market is over, but one can also say that the bear market to begin. As for the U.S. national debt is what a bear market open, changes may occur, resulting in great harm, it also may be a gradual process.

China now holds a nearly trillion dollar national debt several hundred billion dollars U.S. mortgage securities. Weaker U.S. dollar and the bond bears are taking a huge foreign exchange reserves of China will bring huge diminished risk. Public statements from Chinese officials can see that they are worried about the long-term inflationary impact of QE. Obviously, inflation for the large bond portfolio in China is a risk. The short term, or even the long term, I think the risk of inflation is not large, unless the U.S. really started to revive economic activity. The Fed did not print money, the Federal Reserve to do is to buy securities, provision of excess reserves, improve monetary base and money supply, money supply, which can not go anywhere, just stay in the bank.

The bubble economy from the past such as Japan could learn, long-term bond interest rates may be longer than people think interest rates are kept low, we may be close to the lows, and at this level will continue for a long time .

Merrill Lynch’s Ethan Harris said, “If I was China’s sovereign wealth fund, I will be more worried about the long-term budget deficit, which is a very serious concern, rather than worrying about the Fed’s QE”.

He said that when the U.S. economy recovers, interest rates will increase significantly. Investors will find that time, they bought a lot of the interest rate of 2% -3% of assets, but found many other assets, interest rates are 5% -6%.

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