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Economist Stiglitz says U.S. stimulus could fuel Asian bubbles

Byron Perry Property Report
Economist Stiglitz says U.S. stimulus could fuel Asian bubbles - property bubble - United States - Asia

The U.S. Federal Reserve’s plan to expand stimulus by buying an additional US$600 billion of Treasuries will fuel potential asset bubbles in emerging countries with strong growth that don’t have capital control measures, Nobel Laureate economist Joseph Stiglitz said recently at the MIPIM Asia Conference in Hong Kong.

“I do have worries on countries like India,” said Stiglitz, as reported by Bloomberg Businessweek. “The strong economies that don’t yet have capital control become the focal point for all this money.”

Stiglitz said he was not so worried about China however, because officials there are already concerned about property bubbles and could use government measures to cool the market.

Monetary easing to boost growth in developed countries has caused cash to flow into Asia, threatening to increase prices for stocks, real estate, and consumer goods. Developing Asian nations may need to implement capital control measures to curb the risk of asset bubbles due to the Fed’s easing, World Bank Managing Director Sri Mulyani Indrawati said this month.

Stiglitz said the latest round of monetary easing from the U.S. Is “not likely to strengthen the U.S. Economy very much,” but would “cause problems all over the world.” Responses from other countries include “exchange-rate intervention, capital control and taxes and so forth that are fragmenting the global capital market,” he said.

Stiglitz said he foresaw strong growth over a long period in Asia and slow expansions in the U.S. and Japan. According the International Monetary Fund’s estimates in October, growth in advanced countries will slow to 2.2 per cent next year while the developing economies of Asia including India and China will expand 8.4 per cent.


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