进口环氧棒:Li Hong's column--English--People's Daily Onl...{}

By Li Hong

Quite a few people in the western developed countries hold the fantasy that so long the private banks are flush with money -- including huge appropriations injected by the central bank, the economy will heal on itself, reigniting the sputtering factory engine and regaining lost jobs.

Their analogy is: If a person is lying on the hospital bed for a life-threatening ailment, just give the person a respirator and a blood line, the patient will recover and start to kick around, again.

However, if the patient is cancerous and has been on drug support for many years, it won't save the life by continuing to provide blood while avoiding operation and removing the tumors.

Lately, financial markets from Wall Street to London and Hong Kong all tumbled on news that euro-zone fiscal indebtedness would worsen, as ratings agencies were cutting Greece and Spain, and warned impending risks to cripple Portugal, Belgium, Italy and many more. Some economists have announced that if the European Union, typically Germany and France, won't rush to their bailout, these countries have to default on their prior borrowings.

The scenario of fallen dominoes in Europe stokes new fear that the world will be thrown to another serious financial crisis, following the 2008-09 global meltdown. But, the demarcation isn't that clear-cut since the colossal meltdown hasn't really faded, and, a deterioration of the European fiscal woes is an appendix of the 2008-09 collapse.

Some pundits in the United States have pointed fingers at "foolish" austerity policies implemented by the euro-zone governments. These people claim that European belt-tightening has failed to generate fiscal receipts, but further dried incomes, because reduced government spending caused job loss and economic slump.

Their implicit intention is to say: Only the U.S.-style expansionist fiscal and monetary stimulus could rescue sputtering economies.

But, wasn't the Wall Street the first fallen domino this month? The Dow Jones and S&P indexes have lost more than six percent on renewed weakness of U.S. manufacturing, longstanding home foreclosures, and the congressional fight on whether to raise the 14.29 trillion America's federal debt ceiling. It is by all accounts not sustainable for the Obama administration to keep oiling his government machine by borrowing 4 billion dollars each day.

For a time, American people are captivated by a confidence fairy that, so long Washington does not slash spending, and the Federal Reserve keeps federal stimulus by printing money and loans to private banks, U.S. economy will revive and restore its past vitality. However, economists have found it is increasingly difficult to realize the fairy. U.S. economy was managed to attain a lukewarm 1.7 percent growth in the first quarter this year, and the previously acclaimed 3 percent rise for the second quarter is nowhere to attain.

And, we tend to presage a continuous expansionist policy at the Federal Reserve – that is say, the possibility of QE-III (quantitative easing phase 3) looms large. Actually, the stock market has already noticed its coming. As the QE-II will come to an end next month, investors have tested waters by selling off some of their holdings. By the middle of June, if the Federal Reserve remains muted on QE-III, the investors are to dump more, forcing the Dow Jones to yearly lows.

Without the floods from the Fed, the Wall Street and outlying markets as far as Europe and Asia will be deprived of liquidity, and wither in the financial dry-up. The reasonable height for the Dow Jones -- not buoyed by QE bubbles -- will go between 8,000–9,000 points.

For China, the economy management will be made much easier without torrential inflows of QE capital. Once inflation skips down, Beijing could count on low interest rates to inspire consumption and investment to lock up an annual growth of 9-10 percent, handily.