The US Fed's last-ditch attempt at recovery – printing money (+ analysis); Obama takes responsibility for mid-terms loss, but divisions remain; Fears of military clashes in Asia grow; Iran's historic protests; and more
Top of the Agenda: Fed Launches $600 Billion in Quant Easing
The US Federal Reserve launched an effort to revive the US economic recovery with a new round of quantitative easing (FT), which entails buying $600 billion of long-term Treasury securities by mid-next year. The decision for more quantitative easing--which involves driving down long-term interest rates when short-term interest rates are already near zero--is considered a last-ditch option to bolster economic growth and lower the country's 9.6 percent unemployment rate, since Congress is unlikely to agree to more fiscal stimulus. But many economists question the effectiveness of the strategy in boosting investment and spending. Some argue it will lead to a weaker dollar (Reuters), causing asset bubbles around the world and destabilizing currencies. The Fed left open the possibility of expanding (WSJ) the program if growth and inflation are irresponsive in the months ahead. But the program risks inducing inflation, rather than reversing deflation, since the money flooding the economy could raise fears of inflation, driving long-term interest rates higher. In the Washington Post, Fed Chairman Ben Bernanke defended the move, saying policymakers needed to respond to the risks of deflation, and called fears of future inflation "overstated."
In the New York Times, David Leonhardt says there are signs the Fed wasn't buying enough bonds in its first round of quantitative easing, and global investors have not panicked as feared, but become more willing to lend to the United States.
On the Economist's Free Exchange blog, Ryan Avent says markets have already responded positively to the Fed's action, and a weaker dollar is sure to alter domestic firms' incentives to hire and invest.
PACIFIC RIM: Strategic Tensions Grow in Asia over China
The danger of unintended military clashes in Asia is rising as Beijing tries to extend its naval reach and relations sour with rival Japan. The November 13-14 APEC summit in Japan and meeting of G20 leaders in Seoul will test regional powers' willingness to cooperate despite strains (Reuters).
China: In the aftermath of US midterm elections, congressional Republicans may pressure the Obama administration to take a tougher stance with China (WashPost) on issues including technology exports, cooperation on clean-energy projects, and Chinese subsidies to state-owned firms.
This is an excerpt of the CFR.org Daily News Brief. The full version is available on CFR.org