Keep the money coming

Money, money, money

– “The Americans are lost”, says Mr. Schaeuble (Finance Minister of Germany).

With this sentence he reacted to the plan of the FED to push an additional of 600 billion US $ into the market and he obviously jeopardizes the relationship between the USA and Germany (ftd, 05/11/2010). But isn’t this somehow true?

Fact is, the US economy doesn’t seem to react as fast as hoped to the huge amount of money the FED pushed into the market. (see earlier blogpost)

The question is, is pushing even more money into the market the solution to their problem?

Countries like India and Australia are afraid of all the foreign liquidity which is coming in by investors. As their economies are performing so well and their interest rates are a lot higher, many people would like to participate in that success.

In contrast to the FED, the Reserve Bank of India and the Reserve Bank of Australia now raised their most important interest rates by 0.25 Points. This being a reaction to two contradictive goals they need to have in mind (ftd, 02/11/2010):

1)      Stop the Inflation
2)      Keep the exchange rate steady

It seems the FED not only does not help their own economy to get back on track, but also gets other countries into trouble.

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4 Responses to Keep the money coming

  1. rudi2020 says:

    reminds you of something?
    Point is, back than in 1923 they tried to get cheap money which was just fatal, so I see quite some similarities here to the US. “Printing” money and inject it into economy while hoping that it will make a difference in private spending and investment. I am so looking forward to see the result and deeply hope US is getting on its feet again.

  2. stuerzele says:

    Thanks for your comment. I am looking forward to the results as well, but meanwhile, I think it is really interesting to see how the world and its most prestigious economists are discussing the possible outcomes of this: Check out Paul Krugmans Blogpost “Bernanke And The Shibboleths”.

  3. bravenewloock says:

    Rudi, you are very right, for whichever reasons you hope that America recovers. They don`t seem to have many more irons in the fire if you look at the figures: A base interest rate of 0.25% can’t get much lower, and how much more than the 2.6 TRILLION USD QE since end of 2008 (see CNN) can the FED pump into the market?!

  4. There is no more to say. Indeed, I do agree with you both, rudi2020 and bravenewloock.

    The vast financial help is also a controversial point which partly let to our current debate of whether some banks are just “too big too fail“.

    For your interests, there is a very popular book which was named after this bonmot, written by Andrew Ross Sorkin:

    Too Big To Fail

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