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By Jerri Lily

3 U.S. Federal Reserve announced the second round of wide public concern quantitative easing monetary policy. The Fed will be before the end of June 2011 to buy 600 billion U.S. dollars of monthly long-term U.S. treasury bonds to accelerate the pace of U.S. economic recovery, while maintaining the federal funds rate to 0.25% in the zero level of the same. Some countries to respond quickly to the new U.S. order to prevent a large number of U.S. initiatives to encourage foreign capital influx.

South Korea to sell

4 Ministry of Finance Planning South Korea announced that it will “actively” consider taking measures to control capital influx. The same day, won the Bank of Korea to sell to the market to prevent the won-dollar exchange rate at the Federal Reserve implemented a new round of quantitative easing policy further higher.

South Korea responded, according to Reuters interpretation, is “send a message to the market.”

Brazil condemns

However, other participants party officials are not so much concern.

Brazilian Development, Industry and Foreign Trade Ministry, said senior officials, the Federal Reserve to use monetary policy tools to the United States around the country, “a denial” will ultimately lead to trade protection and other “retaliatory measures.”

According to him, trade protectionism as “cancer, will spread very quickly.”

Baral no mention of what measures will be taken in Brazil. However, the Brazilian government introduced various measures over the past few weeks to prevent the real exchange rate against the U.S. dollar continued to climb, including for foreign investors to buy Brazilian debt rate from 2% to 4%.

Summit embarrassment

South Korea is hosting next week’s summit of the Group of Twenty States. Reuters comments, South Korea hopes to encourage all parties during the summit on the global economic balance, the exchange rate cooperation and other issues to reach a consensus, so the control of capital inflows to avoid publicly announced in order to avoid a negative impact on the summit.

South Korean President Lee Myung-bak at the presidential Blue House 3 at a press conference that during the summit, the leaders will discuss Gyeongju, South Korea last month, the Group of Twenty Finance Ministers and Central Bank Governors meeting achieved.

Lee’s judgments with different exchange rates, Credit Suisse analyst Olivier abyad Ball said that all parties make a commitment to specific targets at this stage is unlikely, the summit is difficult to finance ministers and central bank governors in the results on the basis of a major breakthrough.

South Korean officials in public, to reach substantive agreement on the summit expressed optimism, but in private that the countries agreed to specific targets is unlikely.

Dog in the manger, “asking for the impossible”

Although the second round of quantitative easing Federal Reserve monetary policy and the size and manner close to market expectations, but many economists believe that the current slow economic recovery in the U.S., investor and consumer confidence in the context of a serious shortage, the Federal Reserve this policy, For the effect of stimulating the domestic economy or as the fish in the air.

“The United States is now the most serious problem is lack of effective demand, rather than the money supply is not enough. The Federal Reserve’s loose monetary policy some years ago led to a lot of dollars into the property, planted a ‘sub-prime crisis’ of the seed,” the Nobel Prize in Economics Laureate Stiglitz commented.

Stiglitz said that the current United States a greater need for a new round of fiscal stimulus program, rather than to further proliferation of liquidity, or the additional liquidity into the real economy will not quickly become assets, but rather into financial institutions and overseas, birth of a new asset bubble.

“Flood” leakage

Many economists said that as the U.S. dollar as the world’s major reserve currency of the special status, if the Fed to adopt a new policy of quantitative easing would be made “flood gate opening” spillover of the country, to bring other countries to exchange rate fluctuations, asset bubbles, the international financial system is unstable, and many other shocks.

If the new liquidity into the U.S. real economy can not effectively will remain in the financial institutions, profit-driven demand for capital, which was removed in various ways liquidity inflows will be higher capital gains in emerging markets.

The new round of Fed seems compelling quantitative easing, but not well-founded. With the Federal Reserve once again “release on” that other countries also need to prepared to deal with exchange rate of friction, trade disputes, regulatory and other aspects of long-term hot money ready.

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