US banks need their own stim­u­lus to start lend­ing: Ben Ber­nanke

The Pak Banker - - Front Page -

NEW YORK: The Fed has al­ready spent $1.8 tril­lion try­ing to en­tice banks to start lend­ing again to small busi­nesses and con­sumers. Will an­other $600 bil­lion make a dif­fer­ence?

Ben Ber­nanke, the US Fed­eral Re­serve chair­man, has been get­ting a lot of flak of late for em­bark­ing on an­other round of trea­sury bond buy­backs in an ef­fort to stop the coun­try's low in­fla­tion rate from drop­ping and its high un­em­ploy­ment rate from ris­ing.

He has been at­tacked by for­eign gov­ern­ments around the world, in­clud­ing China, Ger­many and Rus­sia, who view this as an ef­fort to ma­nip­u­late the value of the dol­lar down­wards and give the US an un­fair ad­van­tage in ex­port mar­kets.

He has been at­tacked in a car­toon video on Youtube called Quan­ti­ta­tive Eas­ing Ex­plained, which claims that quan­ti­ta­tive eas­ing is a Fed eu­phemism for print­ing money to cure the coun­try's woes, and has al­ready at­tracted 3.1 mil­lion views.

He has even been at­tacked by the world-renowned Fed-watcher Sarah Palin, who said last month she was concerned about what she char­ac­terised as Mr Ber­nanke's plan to start "print­ing money out of thin air" and that it was far from cer­tain to work. Of course, there are those who ar­gue he has no choice but to act. Depend­ing on who you lis­ten to, the legacy of this lat­est US$600 mil­lion (Dh2.2 bil­lion) round of pur­chases be­tween now and June that the Fed an­nounced last month is ei­ther go­ing to be a rapid spike in as­set prices, a weak dol­lar and run­away in­fla­tion in the US, or the end of what would oth­er­wise be a lengthy pe­riod of US de­fla­tion. With any luck, the pol­icy will suc­ceed in cre­at­ing a mod­est in­crease in in­fla­tion.

Over the past 12 months to the end of Oc­to­ber, the Con­sumer Price In­dex for all items less food and en­ergy has risen 0.6 per cent, the small­est year-on-year in­crease since the in­dex be­gan in 1957. The of­fi­cial in­fla­tion rate is now 1.2 per cent and the Fed would like to see long-term in­fla­tion a bit higher, some­where be­tween 1.7 per cent and 2 per cent, in or­der to achieve job growth and keep prices sta­ble.

But, in a speech in New York last week, Jef­frey Lacker, the pres­i­dent of the Fed­eral Re­serve Bank of Rich­mond, re­jected the idea that quan­ti­ta­tive eas­ing would lead to a surge in in­fla­tion.

He said some of the op­po­si­tion amounted to "hys­te­ria" and ar­gued the Fed would be­gin to with­draw mon­e­tary stim­u­lus when the time was right, to avoid that risk.

In fact, he said it was com­mit­ted to re­view­ing the ex­ist­ing pro­gram ev­ery month un­til it ended in June to see if it was still needed. How­ever, Mrs Palin may be right on one crit­i­cal point - quan­ti­ta­tive eas­ing hardly has a stel­lar track record when it comes to stim­u­lat­ing job cre­ation, an im­por­tant goal when the of­fi­cial US un­em­ploy­ment rate is still just shy of 10 per cent. -PB News

IS­LAM­ABAD: Rear Ad­mi­ral Shah Suhail Ma­sood re­ceiv­ing the Nor­we­gian De­fence Min­is­ter, Ms. Grete Faremo, at Be­nazir Bhutto In­ter­na­tional Air­port. -App

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