Shall We Castigate the USA for Switching On the Printing Press?

Late on 13 September 2012, the US Federal Reserve announced a third-round of a quantitative easing, or QE3; thus, they will spend $ 40bn a month on bond purchases.
Federal Reserve Chairman Ben Bernanke further specified that this policy will be pursued depending entirely on the actual situation in the US economy. As soon as it becomes evident that the rate of economic growth is high and stable, the program will be halted, its main purpose being to improve the outlook for the labor market.

The majority of market participants had been anticipating this decision. Markets responded by a surge in their growth rates. Thus, in particular, Russia's market today has risen by more than 3%, and the US market has hit a record high.


The US Federal Reserve will be applying two mechanisms in its support of the real sector. First, every month it will be purchasing bonds to the value of $ 40bn, thus supplying the financial system with liquidity. Simultaneously, the rate of refinancing will be kept at a low level - 0.25%.

It should be reminded that in the USA the main source of financing is the issuance of stocks: their price increases, new investors enter the market, and then money flows from the stock market into the real sectorа. On the other hand, cheap loans make it possible for banks to lend money to the real sector at low interest rates. So, the Federal Reserve's decision to launch QE3 and keep the interest rates low is well-grounded politically and is based on sound economic considerations.

However, it must also be emphasized in this connection that the approaches practiced by the Bank of Russia and the US Federal Reserve are fundamentally different: the Bank of Russia is more inclined to rely on stability of the ruble's exchange rate and a low inflation level, while the US Federal Reserve's goal is to boost economic growth and employment. In fact, the major motive behind the decision to launch QE3 was the high level of unemployment (8.2%) - a politically inacceptable factor, especially in view of the ongoing presidential election campaign.

It would be very wrong to castigate the US for having once again switched on the printing press. The overall volume of support per annum may amount to $ 580bn, while the volume of US GDP exceeds $ 15 trillion. In this context, the scope of financial support is by no means so great. Moreover, the Federal Reserve's resources are not limitless, its balance amounting to only 20% of GDP, which is lower that the share of the RF Central Bank's balance in Russia's GDP.

Considering the length of the economic cycle, the QE3 effect will last for half a year; besides, the Federal Reserve will keep the interest rates low until 2015. In fact, the Federal Reserve sets a horizon of 3 years, which is more than enough.


A. L. Vedev - Candidate of Economic Sciences, Director of the Center for Structural Studies