Geithner to G-20: Stay the course
'Substantial' fiscal and monetary moves across the globe will get traction, US Treasury secretary says.
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To reinvigorate the economy, the Federal Reserve started Wednesday to buy as much as $300 billion in long-term Treasury bills. Just before the Fed made that announcement on Tuesday, the US Treasury sold $40 billion in two-year securities at an interest rate of 0.949 percent. Some 53 percent of buyers were foreigners.Skip to next paragraph
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Geithner, who had not read the proposal, did not immediately dismiss the idea during his talk on Wednesday. He said the governor was “very thoughtful, pragmatic.” He added, “Anything he is thinking about deserves consideration.”
After the US dollar fell sharply on his comments, however, Geithner backtracked. The US dollar, he said, would still be the dominant reserve currency. The US just has to make sure the rest of the world is confident in its economic policy, he added.
A proposal for a supercurrency is not likely in the foreseeable future, says Zandi. The Chinese “are concerned about the devaluation of the US dollar,” he says.
Of all the issues on the plates of world economic leaders, the issue of bad loans is the one getting the most attention.
The British plan, unlike the US Treasury’s partnership with the private sector, relies on taxpayer money to insure two major banking groups – Royal Bank of Scotland and Lloyds Banking Group – against future losses on £600 billion in poor loans and investments.
Other banks have until March 31 to join the plan, called the Asset Protection Scheme, and speculation is mounting that Barclays will do so after it raises the capital needed to pay the fees required to join.
Big British stimulus
The scale of the British government’s plan has largely overshadowed other initiatives in Europe.
The picture is clouded when it comes to measuring the impact of the crisis and how to deal with it, in part because monetary policy for as many as 16 countries is decided by the European Central Bank.
The German government in October set up a 500 billion-euro ($682 billion) bank-rescue fund made up of loans and guarantees, and German Chancellor, Angela Merkel has said she is “interested” to see how the US plan to remove “toxic assets” works, adding that any such plan must ensure that the “burden” doesn’t fall on the taxpayer.
The urgency of the situation has led the Irish government to consider the establishment of a “bad bank” to manage the bad assets, among other proposals.
Some in London were buoyed by the strong response of the US securities markets after Geithner announced his plan Monday to cope with banks’ bad assets. The US stock market rose sharply.
“Many would assume that if it’s good for the US economy, then it’s good for the world economy,” says Julian Jessop, chief international economist at Capital Economics, an independent research consultancy based in London.
Now that the world is dealing with the banking-sector problems, the next issue that has to be dealt with is the financial fallout in bread-and-butter areas of the real economy, he suggests.
“For example, more mortgage loans are going to be lost as the recession bites, while unemployment will be a major issue,” he says.