Global economy to continue "divergent" performance in 2013: IIF (3)

AVOIDING NEXT CRISIS

U.S. Federal Reserve may continue with the QE3 program of purchasing agency mortgage-backed securities (MBS) and long-term U. S. government debt at a pace of 85 billion U.S. dollars per month next year till August 2014 when the U.S. unemployment rate hits a level which is acceptable to the Fed policymakers, he forecasted.

Since the onset of the financial crisis, the Fed has completed two rounds of quantitative easing programs, dubbed as QE1 and QE2. It has bought more than 2 trillion U.S. dollars of U.S. government debt, agency MBS and other assets, expanding its balance sheet to more than 2.8 trillion dollars.

"The Fed is distorting one set of financial markets when trying to fix another set," he commented.

What the United States and some other advanced economies really need is triggering easier lending conditions for the private sector and home buyers to bolster economic growth, he argued.

"I worry that what we are doing is solving the problems caused by the last financial crisis by creating the next one," warned Suttle, adding that the huge liquidity from central banks is creating another round of liquidity excess and risk-taking activities following U.S. high-tech and housing bubbles.

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