20 March 2009

More Money Injected into US Economy

The UK's done it, now the USA have joined the money printing game. In an apparently shock move, the US Federal Reserve has announced a plan to buy $1.2 trillion of government debt.

The decision had its effect on the currency markets as the US dollar fell against all major currencies - 4.2 per cent against the Euro, and 3.9 per cent against the British Pound. This ended the dollar's recent rally - it had risen by more than 2 per cent against major currencies this year. On Standard & Poor's 500, there was an increase of 1.6 per cent.

The Fed has said that they are determined to do whatever it takes to beat recession, but many are asking themselves - why was this really necessary? Deflation is no longer as large a threat as it was, and the Fed have themselves conceded this. Market watchers have commented on the USA's big buck moves while emerging economies in places such as Eastern Europe are beginning to bear the brunt of recession.

It will certainly be on the G20 agenda as there have already been disagreements amongst world finance ministers on how to deal with the global crisis.

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