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World Awaits Credit Crunch' "Exit Strategy" Print E-mail
by Tom McGregor    Wed, Feb 10, 2010, 11:05 am

Await Bernanke.jpgFederal Reserve Chairman Ben Bernanke must start explaining how the United States will pull back from the unprecedented monetary and fiscal support provided to the economy after the credit crisis. It is a debate going on across the world.

According to The Independent UK, "in his first term chairing the Federal Reserve, Ben Bernanke was nicknamed 'Helicopter Ben' for his willingness to shower money on the markets, as he tried to put out fires in the credit crisis. Second-term Ben will need a new nickname, because the next order of business is pulling all that money back out of the system."

Today, Mr. Bernanke will speak at Capitol Hill to outline some of the tools he can utilize to contribute to 'exit strategies' on the credit crisis. This has become difficult since some governments have loosened the fiscal purse-strings to fund economic stimulus packages, as well as central banks that printed cash to bring down interest rates. The pressures vary from nation to nation, but a burgeoning battallion of exit strategists must answer two questions: not only "when?," but "how?"

As reported by the Independent, "in the U.S., the Obama administration is taking a similar approach to fiscal policy as it is to the war in Afghainstan: a surge now, followed by a commitment to begin pulling out in 2011. There will be more economic stimulus this year (this time a $100 billion 'Jobs' Bill'), plus a promise to freeze spending and cut the deficit next year. It is a tricky balancing act, a high wire between Republican fears that the national debt is dangerously high, and Democratic fears that the economy is dangerously weak."

To read the entire article from the Independent UK, link here:

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written by Shadrach , February 10, 2010

The benefit of using monetary policy as an stimulus (or inflation control) is that it is much more effective than either tax breaks or governement spending.

(Which is obviously not to say that such a reality makes either tax policy or spending policy unimportant.)

However, the problem with using monetary policy as a stimulus or control is that it is so effective that its impact on markets is almost immediate and thus, the Fed is subject to potential over and under corrections.

Bernanke certainly has his work cut out for him.




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