Tags: Roubini Monetary Easing a ‘Necessary Evil’

Roubini: Fed's Easing Is a ‘Necessary Evil’ for US

Thursday, 11 Nov 2010 12:16 PM

Economist Nouriel Roubini says the Federal Reserve’s second round of monetary easing was a “necessary evil.”

“QE2 was a necessary evil because with growth so below potential and with inflation following a risk of deflation, if we had not done QE2, the risk of a double-dip recession and of deflation would become more significant,“ he told CNBC.

He said the real economic effects of QE2 will be modest because the market has already priced in its effect.

He also told CNBC that the European Central Bank’s reluctance to consider further monetary easing exacerbates the problems the eurozone is currently facing, and Germany’s criticism of the Fed’s second round of bond buying is “misplaced.”

“The Fed believes we need to do (a second round of asset buying) while the ECB and the Germans are dead against it. On that particular issue I think the Germans have it wrong,” he told CNBC. “The ECB should be providing more liquidity to the financial system and do more bond buying," Roubini said.

He urged all governments, including the United States, to commit to a schedule of reducing spending and raising taxes that would be gradually phased in over the next few years, “so people see there is light at the end of the tunnel of the fiscal train wreck.”

Nobel Prize laureate Joseph Stiglitz told Bloomberg that the Fed’s plan to expand stimulus will fuel potential asset bubbles in emerging countries with strong growth that don’t have capital control measures.

While the latest round of Fed easing is “not likely to strengthen the U.S. economy very much,” it would “cause problems all over the world,” he said.

Stiglitz told Bloomberg that he sees a “long period” of slow expansions in the U.S. and Japan.

Meanwhile, a Bloomberg poll showed that global investors doubt the Fed’s plan to buy more Treasury securities will boost the U.S. economy or bring down unemployment and say they believe the government is pursuing a weak-dollar policy.

Three-quarters of those surveyed say the central bank’s securities purchases — or quantitative easing — will have little or no effect on joblessness, according to the latest quarterly Bloomberg Global Poll of 1,030 investors, analysts and traders who are Bloomberg subscribers.

More than half say the Fed’s action won’t increase U.S. growth over the next year.

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Economist Nouriel Roubini says the Federal Reserve s second round of monetary easing was a necessary evil. QE2 was a necessary evil because with growth so below potential and with inflation following a risk of deflation, if we had not done QE2, the risk of a double-dip...
Roubini Monetary Easing a ‘Necessary Evil’
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2010-16-11
Thursday, 11 Nov 2010 12:16 PM
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