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    Looking ahead to a speech

    Fatih Özatay, PhD30 August 2011 - Okunma Sayısı: 913


    Markets are looking ahead to the meeting Fed President will be holding with a group of central bankers and academics.

    All eyes were on FED President Bernanke who was going to make a speech at Jackson Hole on August 26. Markets were wondering whether or not Bernanke will announce a new quantitative easing (QE) program. This was the burning question. In his speech, Bernanke did not mention a new QE. He rather highlighted the strengths of the US economy. He stated that he has positive expectations especially for the long term. There were significant issues that have to do with the long term, but fundamental problems were rather short-term issues, he said. He also drew attention to the FED meeting to be held in September and stressed that a new assessment will be made thereby.

    The interesting part of this story is that, if he had announced that the FED will initiate a QE, we would have been hearing two different interpretations which were already voiced before the speech: the positive interpretation claiming that the QE will stimulate demand, which is signaling that the risk of a recession in the US economy is dwindling, and the negative interpretation arguing that things are going worse than expected as QE would not be initiated otherwise.

    The problem is not solved

    If Bernanke had announced a new QE, a new risk would have emerged for developing countries like Turkey: during the previous QEs the FED undertook beginning with 2008, a part of the abundant liquidity came to countries like Turkey. Turkey started to increasingly rely on these short term borrowing resources to finance the record-high current account deficit. You might remember that I have stressed numerous times that the economy administration is highly concerned about this development. Therefore, if a new QE came, this problem would have intensified.

    This is the point the world economy has arrived at. Everyone reckons upon a meeting FED President will have in a distant park in the US with a group of central bankers and academics. What is more, though heard, "expected" remarks do not solve the problem but only buy some time. This means sowing the seeds of new problems for countries like Turkey.

    Elder people who talk a lot in particular generally tell the old stories again and again. I have been writing at Radikal for years, and I probably mentioned this before. But let me talk about the meeting hall as well.

    Jackson Hole

    The mentioned meeting is held each year at the end of August by the Federal Reserve Bank of Kansas City. The meeting is attended by renowned academics, central bankers and famous press members specialized on finance from all around the world. I also attended two of these meetings. It was a more than 24-hour travel. I remember traveling 28 hours for the first meeting I attended. The route was Ankara-Munich-Chicago-Denver-Jackson Hole. The symposium takes place in a quite beautiful American-Indian region. For those who are fond of comic books; the venue is situated in a zone that hosts wild-west comics; you recognize the river names etc. immediately. You see American-Indian souvenirs sold around. It is composed of a small main hall and bungalows in the jungle surrounded by a small lake and Teton Mountains. It is an isolated location. On the trashcans in between the bungalows are warnings reading, "Warning! Bear Frequenting Area! Do Not Throw Food!" All around are mooses. During the daytime meeting and talks take place and at the evenings barbeque parties etc. are held.

    Also, important academic presentations are made during the meetings. The main theme of this year's symposium was "long term growth". While the markets were wondering whether a QE will be held, the academia discussed a more important issue. I will continue. Happy Ramadan...


    This commentary was published in Radikal daily on 30.08.2011