Thursday, Mar 19, 2009
America's big bail-out could backfire
MoneyWeek: America's big bail-out could backfire
The US is following Britain's example of 'quantitative easing' by buying up $300bn of government bonds. It's an aggressive move, but it could just make things worse. Long-term interest rates will have to rise sharply. There's a real danger that could choke off any economic recovery before it really starts, as global borrowing costs are forced up. In short, QE II could backfire badly.
Posted by damien @ 06:03 PM (688 views) Add Comment
5 Comments
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1. alan said...
"Last night the US Federal Reserve blasted the bond market with a heavy-duty burst of financial ammunition". C'mon Rambo!
Lets:
1. Push Consumer and Asset prices up again.
2. Create a false market in securities.
That's bound to work....... (yeah, right!).
2. quiet guy said...
So how long can America keep interest rates at 0.25%?
3. drewster said...
Here's a question for the intelligent people: Why are the Fed and the BoE printing money and using it to buy up bonds, when it would surely be much more direct for the government to print money and spend it on the usual government pet projects? The latter solution would put money directly into people's pockets and bypass the banks; it would prevent banks from hoarding money; and it would keep a lot more people in jobs, at least in the short term (long enough for a Brown Bounce and a snap May election).
I'm not suggesting that it's economically prudent. I just don't understand why we're dancing around with central banks and government bond markets, when it would be far quicker (and less distorting to bond-holders & pension funds) to just print and spend?
4. devo said...
Still not worked it out yet, drewster?
Here are some points to consider:
1.The money being created at the moment isn't for us.
2. Much of the bailout money donated so far at the expense of taxpayers has gone overseas.
3. The banks are still leveraged to the hilt and much more money will be required in the future.
I'll now hand over to the 'intelligent people' to explain further.
5. Greytornado said...
Look at the BBC story on Iceland in another post on this site today - After the collapse, they now have interest rates of 17% at the behest of the IMF. The UK is technically bankrupt anyway, but it's not yet official. We will be in the same situation with very serious inflation and very high interest rates before long.