The United States Federal Reserve has come under criticism for its third round of quantitative easing – or QE3 – from many countries, especially emerging ones, who are concerned it will lead to the creation of asset bubbles that will cause problems within their economies.
What will be the effect of this QE3 on Singapore’s economy and how is it likely to affect its people in general?
In QE3, the buying of mortgage-backed securities by the Fed will increase the money supply in the US economy and, given the Fed’s policy of low interest rates, the additional money is intended to spur spending by individuals.
The idea is that this increased spending will improve the housing market as well as other industries, which are then likely to employ more workers, thus reducing unemployment. Unfortunately, this scenario is likely to happen only when an economy is a closed one – that is, there are restrictions on trade and capital flow across countries. [Sundaram Janakiramanan. QE3 and the S’pore economy. Today. November 1 2012]
But, but, but… is it not that a large open economy that the US is is pretty much close to a closed economy, professor?