Sun, Dec 05, 2010 page11

• Bernanke defends securities purchase

  DOWNSTREAM: A former Fed vice chairman has said last month’s purchase of Treasury securities doesn’t mean the bank is trying to help the US at the expense of other states

  • Bloomberg
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  US Federal Reserve Chairman Ben Bernanke defended the Fed’s decision to purchase US$600 billion in US Treasury securities and didn’t rule out expanding the program, in an interview for CBS television’s 60 Minutes, the network said.

  “He explains why the Fed announced its intention to buy US$600 billion in Treasury securities, defending against charges the move will lead to inflation and not ruling out the purchase of more,” according to a press release from CBS on Friday.

  The interview with CBS journalist Scott Pelley was filmed on Tuesday in Columbus, Ohio and will air today.

  

  US Federal Reserve Chairman Ben Bernanke, left, talks to journalist Scott Pelley in a library at Ohio State University in Columbus, Ohio, on Nov. 30.

  Photo: Reuters

  At its meeting on Nov. 3 in Washington, the Fed announced the program to purchase about US$75 billion a month of US Treasury securities through June.

  The Fed’s Open Market Committee said it would “regularly review the pace of its securities purchases and the overall size of the asset-purchase program.”

  Republican leaders in the US criticized the second round of so-called quantitative easing last month, where the Fed attempts to provide additional monetary stimulus by purchasing US Treasury debt. The Fed’s benchmark lending rate has been in a range of 0.0 percent to 0.25 percent since December 2008.

  The news show’s Web site previously stated that Bernanke will discuss “pressing economic issues,” such as US unemployment, the US federal deficit and the central bank’s decision last month to purchase an additional US$600 billion in US Treasury bonds.

  Meanwhile, former US Federal Reserve vice chairman Donald Kohn said on Friday the Fed’s decision to buy US$600 billion in Treasury securities didn’t mean the central bank intends to benefit the US at the expense of other countries through favorable exchange rates.

  The Fed asset-purchase plan is designed to keep interest rates low and spur growth, causing some concern that capital will flow into other countries’ economies.

  “There was no intention just to shift our problem to the rest of the world,” Kohn said. “The intention was to get a stronger US economy through a number of channels.”

  However, officials in emerging market nations are correct in voicing apprehension about the flow of capital into their economies, he said.

  “Emerging market economies are right to be concerned about the use and the character of these inflows and what will happen when they’re reversed,” Kohn said during a panel at the Brookings Institution in Washington.

  “The US in the 2000s is a good example of what you shouldn’t do with inflows of capital,” Kohn said.

  The capital funded “unsustainable credit,” while fueling a rise in consumption and in residential construction.

  It also “financed the build-up of debt in the government sector so we didn’t have as much space to move when the crisis came,” he said.

  Kohn, 68, retired on Sept. 1 after serving as the top monetary policy strategist for former US Federal Reserve chairman Alan Greenspan and as Bernanke’s chief lieutenant. He joined the Brookings Institution, a research organization, as a senior fellow after leaving the Fed.
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