阿尔山温泉治疗皮肤病:謝國忠 : The chairman's teasing show

  Chairman Bernanke promised to keep the Fed funds rate at zero for two years and additional measures to support the economy. The stock market cheered and roared back. He achieved his goal! Yes, this is about the stock market.

In the Fed's staff's cookbook, the impact of the monetary policy is measured in terms of financial condition that depends on interest rate, credit spread, and asset prices. With interest rates so low and property market weighed down by inventory, the monetary policy is about the stock market. When the market falls like in the past two weeks, it is tightening in the Fedspeak.

Why should the market react to the Fed promising to keep the funds rate at zero for two years? The BoJ has done it for, well, a lifetime. Look where the Nikkei is. Further, could anyone stop the Fed from changing its mind? If it wants to raise interest rate in November 2012, could anyone bring Bernanke to court for breaking his promise? So, the promise is essentially hot air.

It works in the US for now because the US investors still want to play. They need to be emboldened by something. Doesn't matter if it is real or not as long as it captures the market's imagination. This is like a stripteasing show. One can start with a lot of clothes to make it last. Even when it comes down to underwear only, one still can tear it apart one bit at a time. This game stops when the audience no longer believes. You never know when the tipping point is. Chairman Bernanke will continue to play as long as the market still reacts.

The effectiveness of the game does depend on showing a bit more flesh every time. Promising zero interest rate for two years is tantalizing but not real flesh. The Fed has to follow up with real actions like buying something. The most straight forward one would be to buy stocks like S&P 500 index, since the purpose is to get the stock market up. But, that would leave nothing for imagination. The Fed would dance around it and buy something closer and closer to stocks.

They tried treasuries before. It's not fresh anymore. To make it work, the Fed has to promise to buy more in QE 3 than in QE 2. The bigger quantity could get people worked up. But, that is not subtle and costs too much. A new trick will be more effective. For example, corporate bonds, bundled SME loans, credit card arrear pools, etc. People need new things to get excited. The Fed has to find new ways to cut it.

Would the QE 3 improve the economy? Yes, in the short term. When American consumers see their 401k accounts pumped up again, they will go out to buy something. But, the effect won't last. The unemployment rate will remain very high. To bring it down, the US has to try something radical, like turning urban youth into farmers or fishmen. President Obama is one hell of a talker. But, he doesn't have the imagination or political pull to bring a radical solution to the US economy.

Across the Atlantic, the ECB is buying Italian bonds. This has more meat than the Fed's promise. The market will come around to see its significance. Greece can default. Italy cannot. The ECB has to print as much money as necessary to ensure that. Any ambiguity on that would embolden speculators to attack. If the ECB's action is always circumscribed, it is a slippery path to hell. Who is standing in the way? Germany. If Germany doesn't come around and give the ECB as much power as necessary, it too will go to hell with the likes of Italy or Spain.

The global economy is encountering structural forces that would keep it sluggish for a long time. The high deficits and indebtedness in the west and inflation and bubble in the east make the world vulnerable to speculative attacks. Such attacks narrow the room of maneuver for governments and central banks. They have been reduced to soothing the ego of speculators. Governments of the world must understand that they have to kill speculators to have time for structural reforms.

Governments of the world unite! You have nothing to lose but your hedge funds.