MEDIA REACTION: U.S. ECONOMY

UNCLAS HONG KONG 000529 DEPT FOR INR/R/MR, INR/IC/CD, I/FW DEPT FOR EAP/PD, EAP/CM, EAP/P DEPT FOR VOA/BRF, TV-WPA WHITE HOUSE FOR NSC PRC POSTS FOR PA AIT USPACOM FOR FOR CIS PD ADVISER E.O. 12958: N/A TAGS: OPRC KMDR SUBJECT: MEDIA REACTION: U.S. ECONOMY TOPIC: U.S. economy HEADLINES AND EXCERPTS: "U.S. starts its money printing machine to bolster up the market; this move foretells that the risk of the devaluation of the U.S. dollar and inflation have largely increased" The independent Chinese-language Ming Pao Daily News had an editorial (3/20): "Since the financial tsunami, the U.S. has made tremendous efforts to stabilize the financial system and to restore the economy. However, the effect is not obvious. The U.S. Federal Reserve finally gambles all in a single throw and decides to buy US$300 billion treasury bonds within half a year. This move is described as running the money printing machine. We will have to wait and see the effect. However, it is certain that this extreme measure will create an environment for the transfer of wealth in the investment market. With a huge amount of U.S. dollars flooding the market, it portends that inflation and the devaluation of the U.S. dollar will come into sight one after the other. For the Central government of Beijing and the SAR government, the chief mission is to reduce buying U.S. treasury bonds in order to avoid any further loss of the money of the people. In addition, the Central government and the SAR government should study the de-pegging of the Hong Kong dollar from the U.S. dollar. They should get ready and seize the opportunity to introduce the de-pegging in order to avoid Hong Kong being affected by the U.S. dollar and China being dragged into the trouble..." "Federal Reserve prints money, Premier Wen's nightmare comes true" The independent Chinese-language Hong Kong Economic Journal said in an editorial (3/20): "...'In order to help improve the condition of the private credits markets', the Federal Reserve will buy a total of US$300 billion of U.S. long-term treasury bonds in the next six months. This is the first time the Federal Reserve has ever done that. Such a decision is very abnormal. The market believes that in the era of 'zero interest rate', the Federal Reserve is moving toward a quantitative eaing of monetary policy. In other words, it willstart running its 'money printing machine' to prin money.... The Federal Reserve is directly buyin treasury bonds and not from the secondary market This move is known as 'monetization of debt'. It is equal to opening a door for the government'sdeficit financing. It has sacrificed the indepedence of the Federal Resere's currency policy. Once the gap is opened, the Treasury Department can make unlimited demands and it can urge the Federal Reserve to buy more ong-term treasury bonds. The fiscal disciplie of the U.S. administration will all be gone. The possibility of the large-scale devaluation of the U.S. dollar has largely increased. Premier Wen worries for the safety of U.S. treasury bonds. The decision of the Federal Reserve on Wednesday has already issued an alarm to China." "Bernanke acts as Rambo, printing money will cause problems' The independent Chinese-language Hong Kong Economic Times commented in an editorial (3/20): "The U.S. Federal Reserve yesterday announced after the Federal Open Market Committee (FOMC) meeting that it will print some 1.1 trillion U.S. dollars to buy treasury bonds and mortgage securities. This is a move to ease the tight credit market. The market said the Federal Reserve is like Rambo who fired his machine gun furiously. All sectors hope that the Federal Reserve will succeed. Otherwise the consequence will be too ghastly to contemplate.... Being in an unfavorable situation, Bernanke still decides to print money although he knows clearly that the risk is high. The important point is, can he gain the market's confidence by means of strength, timing, arrangement and communication? It is believed that he can keep various unfavorable side-effects under control to prevent the market from challenging the Federal Reserve. Only by this way, can the financial and economic crisis be rescued from the dire situation." "Frantically printing U.S. dollars to rescue the market, try to save the extremely urgent situation with a bold gamble" The center-left Chinese-language Sing Tao Daily News said in an editorial (3/20): "While the reaction to the Obama administration's economic stimulus package is not too good and not too bad, the Federal Reserve runs the money printing machine to print some one trillion U.S. dollars to buy treasury bonds and mortgage securities, which result in 'an indirect interest rate cut'. The scale of the market rescue measure this time is beyond one's expectations. It shows that the Federal Reserve is 'tough' to make a bold bet to restore the market confidence.... The U.S. administration has to pay the price by tossing money out from the helicopter. The U.S. dollar's trading against the gold, the euro and the yen has all dropped. The flooding of capital will plant the seed of inflation when the economy recovers." "The U.S. Federal Reserve buys bonds, one has to wait and see the effectiveness of such a bold measure" The pro-PRC Chinese-language Wen Wei Po had this editorial (3/20): "The U.S. Federal Reserve decided on March 18 to maintain the federal funds rate at 0.25 percent. It also claimed that it will use all possible tools to push for economic recovery. The U.S. Federal Reserve will buy $750 billion mortgage-backed securities and buy $100 billion more GSE-issued (Government Sponsored Enterprises) debt securities. In the next six months, it will buy a total of US$300 billion long-term treasury bonds. The U.S. Federal Reserve is further adopting the quantitative easing of monetary policy. Its move to buy U.S. treasury bonds is equal to running the money printing machine to bolster up the market. This is a strong medicine which is toxic. In the short run, it will be effective in stimulating the economy. However, it will distort the economy in the long run. It will step up the devaluation of the U.S. dollar and push for inflation. This will cause a big harm to its creditor nations and the developing countries." "Federal Reserve's measures will cause more unrest in the market" The pro-PRC Chinese-language Ta Kung Pao remarked in an editorial (3/20): "...Many commentaries fear that the Federal Reserve printing money will lead to more serious inflation. However, this is just the future worry. One should rather pay attention to the stability of the financial system now. The capital of the Federal Reserve currently flows in a large quantity and it will flow out in a large quantity in the future. This may lead to more uncertainty and fluctuation in the market. Many private investors dare not enter the market. Those who enter the market are making use of the opportunity to speculate. The market will then become a public, as well as a private gaming platform. It will add more troubles to the crisis. The large-scale buying by the Federal Reserve in an attempt to push down the interest rates of various markets will also distort the financial system..." "It is risky to run the money printing machine and buy treasury bonds with a large sum of money" The pro-PRC Chinese-language Hong Kong Commercial Daily wrote in an editorial (3/20): "As expected, the interest rate remains unchanged after the U.S. Federal Reserve had the FOMC meeting. However, the Federal Reserve announced that it will buy US$300 billion long-term treasury bonds in the next six months. Once the news came out, the bonds market and the currency market were immediately shaken. Hong Kong Monetary Authority Chief Executive Joseph Yam yesterday warned that the fluctuation of the bonds market is unprecedented. He urged investors to be careful.... It is not yet known if the Federal Reserve's measures are effective or not. But it can be sure that the Federal Reserve has planted many uncertain factors and risk in the market by 'running the machine to print money and buy treasury bonds in a large scale'." DONOVAN