US Federal Reserve on Tuesday, or March 11, spearheaded a new coordinated push by world central banks to bolster global confidence. It pumped 200 billion US dollars into the ailing financial markets through the creation of a new Term Securities Lending Facility (TSLF), and the rally followed a sharp advance on U.S. and European stock markets the same day with major indexes up more than three percentage points.
This week's unprecedented Fed move to lend 200 billion dollars in treasures from its balance sheet has posed another action following a joint injection of funds by European and American banks in December 2007. The positive response of financial markets seems to let people see their hopes. However, critics noted, whether this move of the Fed's can restore confidence and bolster financial markets remains undecided.
The United States has taken a package of measures to avoid or avert an economic recession, such as the Fed's lowering of interest rates and input of huge capital to financial markets, ever since its sub-prime mortgage crisis commenced in July 2007. Most of these measures, nevertheless, worked only briefly, and stock markets rose slightly and then bogged down again.
A range of statistics indicate that the U.S. economy is on the verge of a recession, and more and more economists hold that conventional monetary and financial policies can hardly curb the risks of slipping into a recession.
The Fed is now accepting mortgage-backed securities as collateral in exchange for loans of central bank cash, so as to alleviate the pressures on fluidity of financial markets. To compare with the previous fund injection, the Central bank will accept a wider range of high quality securities as bonds issued by G10 government agencies guaranteed by national governments, rated AAA.
To date, the total value of all sub-prime mortgage loans has reached 6.1 trillion US dollars, according to the relevant statistics, and 2 trillion dollars of the sum constitute the government-guaranteed high-risk bonds. Meanwhile, a fund injection itself has not resolved the problem relating to confidence. So, tightening credit means essentially a confidence crisis, which has derived from the home market. Consequently, it is still too early to tell if this move of the Fed's would benefit ordinary consumers.
This move of the Fed's, however, transmits a definite, clear-cut message: Fed has prepared to take more creative methods to resume the vitality of the credit market so as to ward off the possible arrival of an economic recession. Analysts therefore insist that the Fed would still have a spacious room to employ more drastic means in the weeks or months to come.
By People's Daily Online and its author is Ma XiaoningAuthor：World Business Time：2008-05-24 From：china daily
