US economist doubts effect of Fed's latest easing measures
October 2, 2012, 12:00 am TWN
TAIPEI -- The United States Federal Reserve's third round of quantitative easing (QE3) will not have much effect on the economy, a visiting American economist said yesterday.
“I don't have very great expectations about what the quantitative easing and the United States are going to achieve,” Dale Jorgenson told reporters after delivering a speech at the Chung-Hua Institution for Economic Research in Taipei.
Under the QE3 program, the Fed will spend US$40 billion a month to buy mortgage-backed securities for as long as it deems necessary. After including current bond buying measures, the U.S. central bank is expected to inject US$85 billion per month into the market.
“Monetary policy measures are not going to be very effective, so you can't look for improvements from that source,” Jorgenson said, adding that a sustainable fiscal policy and a budget resolution may be the answer.
He also said Taiwan will shift away from its traditional markets in advanced countries toward emerging Asian economies in line with the global trend.
“Taiwan is going to become much more integrated with Asia than it has been in the past,” Jorgenson said.
“It's going to be a painful process. It's going to be expensive, and it's gonna take time,” he said.
Although China, an increasingly important market for Taiwan, will see it's economic growth slow down, Asian markets, such as India, are still growing very rapidly, he said.
Moreover, there are positive developments in the United States, also a very important trade partner with Taiwan, which “is right now turning around and getting back toward something like recovery,” the economist said.
However, Jorgenson held a pessimistic view over European markets. The situation in Europe “is still probably going to get worse before it gets better” due to its currency misalignment, he added.
Acceleration of World Economy
He said the global economy will speed up mainly due to the rise of China and India.
In terms of purchasing power parity, China by 2020 will overtake the United States, which has been the world's leading economy for a century, he said.
Meanwhile, India is likely to overtake Japan to become the third leading economy in the world, followed by Germany, Russia, Brazil and United Kingdom, the economist said.
Purchasing power parity is a means of comparison that involves adjustment of exchange rates so that an identical good in different countries can have the same price when expressed in the same currency.