The week-long debate has so far been settled, as the U.S banking –system bailout plan, involving $700 billion to buy up troubled mortgage investments and urged by the U.S Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, has finally gained the congressional approval in the week gone by.
But meanwhile, investors are still showing doubts and concerns on the prospect of the U.S financial market, which is right now panicked and riddled with uncertainty. Besides, fluctuations persist in the international financial market. In the backdrop of the globe-sized financial turmoil, the Treasury's plan might work, but there is no guarantee. After all, whatever plan put in place at this moment cannot work as a one-step crisis fixer.
Apparently, the system-wide purchase of problem assets, as the rescue plan intends to do, is by no means a panacea for the ailing U.S economy, but more like an emergency tactic which could stop the downward spiral in the credit markets. In the short term, it seems optimistic that the Treasury's plan will not only ease financial stress but also make a profit for taxpayers. Mr. Paulson aimed to restore confidence through the bailout plan by moving the most troubled assets off the balance sheets of banks and into a TARP—troubled asset relief program.
In this case, the implementation of the bailout plan could for the time being cushion the troubled financial institutions in a ‘buffer zone', and to some extent, restore people's confidence in the financial markets, as Paulson expressed at a Senate hearing Tuesday that the bailout would work, and by removing uncertainty about impending mortgage-related losses, he said, the program could pave the way for banks to keep lending and get new infusions of private capital.
In the mid- and long terms, however, the U.S economy has been grappling with uncertainty and unprecedented crisis. A current rise in unemployment and a drop in consumption serve as a showcase suggesting that the U.S economy is still declining, and even likely to go further into an economic depression. The U.S-born financial turbulence would also spread globally, with its impact extending to Europe, Japan and other Asian economies, leading to a general economic slowdown in the entire world.
An in-depth analysis suggested that the $700 billion bailout plan would possibly send the entire world plunging into a fresh wave of financial crisis. The bulky sum for rescue also indicates that the U.S is trying to shift its problems to others, and the world at large will have to pay the price for Wall Street financial storm, as almost all the economies are interdependent and the risk of continued chaos remains significant in the U.S economy. The U.S long-term goal to devaluate its dollars involves the likelihood of another large-scale expansion of the U.S dollars. Consistent with a multiplier leverage effect in basic currency trade, people are convinced that far more dollar liquidities will be created in the international financial market, with a level much higher than the newly issued bonds by the U.S government or fiscal deficits.
These dollar liquidities would push forward the devaluation of the U.S dollars, and in the mean time, would force up the futures prices of petroleum, grain, gold and bulk commodities, which can be another nightmare for those economies already bogged down in the marshes of high inflation, and impose a heavier strain on the world economy. As for the emerging economies, they will have to suffer the twin pressures not only from global economic slowdown but also from the potentially imported inflation from outside.
Basically speaking, the relief program could function in the short term to such an extent that it could temporarily ease up the stress and stabilize the financial market, but it cannot cure the disease suffered by the whole financial system. The countries concerned will have to work out the emergency plans of their own in a bid to stabilize their own economy and financial market. Against the global financial fears, the governments will also have to join efforts to combat the financial crisis and push ahead with the reforms in the international financial and monetary systems in order to curb the hegemony wielded by the U.S dollars over the world economy.
By People's Daily Online
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