MEDIA REACTION: U.S. ECONOMY

UNCLAS HONG KONG 000529


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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