Opinion: Is 3rd round of Quantitative Easing coming? 

By Ding Yifan (Guangming Daily)

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08:47, October 09, 2011

Edited and Translated by People's Daily Online

The U.S. Federal Reserve had a meeting in Washington in August when officials of the International Monetary Fund and the World Bank were also having meetings there. The whole world turned their eyes to whether the Fed chairman Ben Bernanke would announce a decision about initiating the third round of Quantitative Easing monetary policy. 

The American stock market fell after Bernanke said nothing about the monetary easing measure. Fortunately, he added that there would probably be more tools to utilize to help the poor economic performance of the United States. His words led to another round of stock rebound at Wall Street. The Fed needs to hold a lot of meetings in the future, and whether and when the third round of quantitative easing will be introduced has become an important subject touching nerves of tens of millions of investors.

Quantitative easing means that the Fed directly buys government treasury bonds issued by the Treasury Department, and announces purchase quantity and speed in advance. The Fed is the central bank of the United States, and the move that the central bank buys treasury bonds from the Treasury Department is called "printing money" in Western economics textbooks. 

Both economics theory and historic facts have taught us that printing paper money may, ultimately, trigger inflation. Dollar is the currency for pricing international bulk commodities, and it would depreciate if there were a large circulation, which would lead to rise of international bulk commodity prices. Economists in the United States have already warned of the side effects of more monetary easing polices by the Fed. 

They said that the United States could have higher inflationary expectations so as to deal with economic recession, and that the Fed should not set the inflation target at 3 present.

In the 1950s and 1960s, the West Europe and Japan accumulated a lot of U.S. dollars by exporting products. In the beginning of the 1970s, the United States found that its gold reserve was already not enough to deal with the U.S. dollars held by countries of the West Europe and Japan. Therefore, the Nixon Administration decided to default and closed the window of exchanging the U.S. dollar into the gold. Then, the U.S. dollar depreciated greatly and an inflation impacted the West Europe and Japan's economies. The countries of the West Europe not only suffered great losses but also had to suffer elevated inflation caused by the U.S. dollar. Therefore, they came to the U.S. Treasury Secretary John Connally to complain. But Connally said, coldly, that, the U.S. dollar was "our currency but the problem was your problem". The cold words made them not able to say anything. That is why they made so many efforts to launch the euro.

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