By Ignoring The Japanese Crisis, Bernanke May Have Made A Huge Mistake Yesterday

Nothing has changed as far as monetary policy is concerned: target Federal Funds Rate remain at 0% to 0.25%, and the second round of quantitative easing will proceed as planned.

The FOMC statement says:

Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labour market appear to be improving gradually.

The overall tone of the statement is certainly more positive for now, which is fair enough as recent data releases have been more positive.  No words on the new risk arises from the potential economic meltdown in Japan, which is also fair enough as the impact from Japan is  more likely to be less direct compared to Asian economies, at least on the surface. 

Or is it?

Judging from the horrible track-record of Ben Bernanke, however, it should not be surprised that he is going behind the curve again.  A quick reminder: out of all Japan’s outbound foreign direct investments, 14.3% of them went into the United States in 2009.  Although the US’ share of Japan’s FDI fell to second place in 2009, it was the largest in previous years.  And by the way, Japan is the second largest foreign holder of US Treasury Securities.  As the funding requirement in Japan increases for rebuilding the country, the risk for the United States is that funds will be pulled back home, or at least the future FDI  and purchase of US Treasuries will slow.  Although it is still hard to assess the true impact for the moment, these factors do not bode very well for the US economy.

 

Read More:

The Impact of Japan’s Earthquake On the Economy

How Does Ben Bernanke Screw Up The World

This article originally appeared here: United States: Economy On A “Firmer Footing”, Or Is It?
Also sprach Analyst – World & China Economy, Global Finance, Real Estate

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