一句话一段的文章

 

 

老师不让写一句话一段的文章, 忘记 是为什么了.

可能是难度 太大了? 一句话一段的文章是很难拿捏 的.

 

西塞山前白鹭飞，桃花流水鳜鱼肥。

青箬笠，绿蓑衣，斜风细雨不须归。

 

–张志和的《渔歌子》, 唐人写的.

 

今人的也有–《成全了自己的碧海蓝天》, 很长,得读几个小时, 不过写得很不错.

老师说的不见得都对. 一句话一段的文章也是 可以写的.

误导.

 

 

 

 

 

Central Banks Fall behind the Curve

 

The curve is the inflation curve. The central banks to blame are all the major ones around the world—the American, Chinese, Japanese and even the European central bank. They can only rein in inflation if they act collectively on monetary policies—right now.

Right now, I don’t see it is probable.

For months, the US Federal Reserve has been leading the fight against the credit crisis—a battle has not been played out yet. While the Fed is busy at patching the financial system, it let the side effect of this fight unattended. Inflation genie has gotten out of bottle and is expanding worldwide. The central banks in many countries have injected billions of dollars to keep the financial system running. And the financial engines channel the liquidity to nowhere but commodities like oil, corn, grain, rice… you name it.

There will be no winners if we allow inflation to get out of hand. People cannot make meaningful business decisions as they cannot gauge what’s the value of their work or investments they commit today will be worth tomorrow. And earnings of hard work will be robbed away by rising inflation mercilessly.

What is even worse is that inflation expectation is reinforced by inflation reality. Oil producers are rationale that they are not eager in taking advantage of today’s record oil price by jacking up productions – because they know that tomorrow’s price will be even higher!

What’s the hurry? We produce all we can and let money chase our black gold!

If central banks do not act when oil price is at $130/barrel today, they will lose credit as inflation fighter when oil price reaches $150/barrel by mid-summer. Time is running out, and the chance of losing people’s confidence in central banks is real.

The central banks—even if they still have the power to break inflation today—don’t have the gut to do it. When they will be forced to do something, it will be too late.

Anyway, the central banks are almost meaningless at this point during the battle against inflation. They are too late in view of the entire economic well-being. The economy is damned if the central banks start to fight and equally damned if they don’t. It is a matter of how severe and how long-lasting the economic damages will be.

Right now, we are all eating the bitter results and we are all in it together.

Fasten the seatbelt.

How Do Cities Rise and Fall

Great cities are much fewer than the ordinary ones around the world. And many once-glorious cities have faded away from the scene as times changes. Still, some cities have survived and thrived till to this day. Economists are fascinated with what shapes up the city’s fate and how its future is determined by what factors. The living standard, education facilities, wage level and amenities that a city can provide are closely related to the welfare and prosperity of those people who live in or close to it. Knowing how a city positions itself in a competitive economy and what advantages a city holds is in and of itself a great advantage for people who would like to improve their well-being given that transportation or relocation costs have decreased drastically and people’s mobility have improved greatly.

Ed Glaeser, an economist of Harvard University, presented at a Fed’s conference in Cleveland a very interesting research paper on the rise and fall of cities across America over the centuries. It is a good primer of understanding the regional economic history of the US and gives some good analysis on the reasons why some cities in America have enjoyed long lasting prosperity while others fell out of grace or even into desolation as the economy changes over time.

The paper is related to urban economics– one of the few sub-disciplines in economics that are not dry or boring. Like many other economic theories, urban economic development theories are far from conclusive. Nonetheless Glaeser’s paper touches on several key issues, over the long-term, that have big impacts on shaping up a city’s destination one way or another. Specifically, they are 1) human capitals, 2)cities’ agglomeration or network effects on either production, market, or sharing of information, skills or knowledge, 3)natural endowment or amenities like weather, entertainment or leisure values, and 4) technologies that transform the functions of cities.

City’s human capital advantage

Like any other development economics theories, urban economics emphasizes on human capitals that a city would be able to harness in order to raise the competitiveness and productivities. The best example is the migration of manufacturing from the Northeast into Midwest and hallow-out of heavy industry from the Rustbelt in the past two decades. The transformation of these regional economies hinged on how much human capitals some cities or metropolitan areas can retain or develop in the process of moving from the manufacturing to high-tech or service-orientated economy. The success and benefits of this transformation, which occurred mainly in the 1990s and early 2000s are best embodied by the city like New York or Boston, and in general, the region in between these two cities.

However, the importance of attracting human capitals in developing local economy may only be true to a certain degree. With technology advancement and globalization, human capitals become more available from different locations. Cities which boast greater human capital accumulations may find their advantage erode very soon as education level around the world has been rising, albeit slowly. If people with similar skills required for work can be retained at a much lower cost in some places like China or India, whether they are blue-collar workers on assembly lines or professionals in financial services or researchers, it will just be a matter of time before migrations of the jobs occur. It is really not the absolute human capital, rather, the competitive edge of human capitals that become more and more important in today’s context of globalization. This is nothing new or surprising given the law of diminishing return or the erosion of time value of any knowledge or skills.

As people’s mobility and transfer of technology accelerate, many cities may find it relatively easy to establish themselves as a center of economic activities even without distinctive human capital advantages. They would be able to attract businesses with incentives such as lower taxes, cheaper land or labors, or big market potentials. Although many cities may find it difficult to compete against the places like Cambridge in Massachusetts or New Haven in Connecticut in attracting great minds or Nobel Laureates, they could still do well if they leverage their competitive advantages other than human capitals. For example, some cities benefit from the decisions that their locations have been selected by some big research institutions, which will generate a lot of job opportunities and demand for housing, healthcare and education, etc.

Economics of agglomerations and clustering

People choose to live together in a city or a nearby area for the economic benefits—so that they could easily find job opportunities; they would incur less transportation costs or have easy access to information, skills or knowledge. The same rationales hold for businesses. Most markets or production sites are developed in or around cities for easy access by customers. People who go to Las Vegas for leisure probably have same idea in mind about what to do over there, or, if people want to develop software products, they are likely to go to places such as Silicon Valley, Seattle or Austin in Texas. The facilitation and competitive advantages held by a certain geographic location have long been recognized as instrumental in local economic development and growth.

However, some arguments suggest that such agglomerations or clustering of either people or production may be less important in today’s economy. The concentration of productions, R&D and commercialization do not fit the global market environment. Markets become much larger today and are not limited to a certain geographic area. The examples of many companies having diversified and localized their R&D activities around the world indicate that technologies become a great enabler for collaboration and information distribution. Many cities may find it is all of sudden in a very precarious situation when a multinational company decides to relocate or move the factory to another place. The cities’ fates therefore become more dynamic and uncertain. The clustering function of cities has become less critical– If it is not irrelevant.

Location and amenities

Some cities hold better natural endowment or provide better amenities than others. It is very hard to do anything about it. The good weather of California or Hawaii attracts many people who are not afraid of or are unwilling to consider the possibilities of earthquakes or volcano eruptions. People have to make decisions among many factors when choosing a place to live, although these decision choices may not be weighed by a mathematical formula or in a perfectly rationale way. Among these factors, location and amenities hold disproportionally greater importance for some people. It is hard to find as many fine art galleries or museums in any other cities than in New York or Washington D.C., although it is very likely that these places have a higher crime rate and a poorer education system than other cities do. Cities with location advantages or better amenities are better positioned in a competitive economy.

Technologies as a disruptive force against cities

Technologies, as they continue to develop over time, assert greater roles in various aspects of the economy. Are they going to work towards diminishing the cities’ roles and functions in the economy? It could be. When the manufacturing industries started to fall in the US, cities or metropolitan areas such as Boston and New York were able to transit their economic activities from industrial to service-orientated economy with emphasis on R&D, financial services, healthcare services or entertainment. It is suggested that technology developments have been a critical element throughout this transformation. If videoconferencing as a way for people to visit customers or to collaborate with colleagues can save time, avoid costs of transportation or reduce CO₂ emissions, the rationale of building financial district, CBDs (central business districts) or technology parks will be greatly undermined. Cities, therefore, would be less important as a place holding together various economic participants if their traditional roles are superseded by new technologies.

Paradise Where?

The above discussions are just some mainstream economic views that may explain how cities survive and thrive throughout the history. There is no magic formula to build a successful, dynamic and prosperous city. And some cities’ success is even inexplicable. In fact, many natural advantages that some cities boast may never be replicable.

People judge cities by their own criteria. There are many benefits of living in a great city, however that “greatness” is defined. Perhaps diversity is the best reason to explain why cities have been attractive and perhaps, above all, great cities are destined to be great no matter what.

One World, Two Wheels

 

Great news to prove that economics has some validity.

This title has nothing to do with the BOC’s slogan of “One World, One Dream” regarding the upcoming Olympics Games. This is about a bicycle promotion programs-thanks to the rising oil prices, people started to ride two wheels instead of four wheels.

Who said people were not sensitive to gas price? Now Indians switched to camels and Americans to bikes. Good times started in 2008.

Why not? Weather is warming up and rain stopped; so time to think about getting out of my bike… Could somebody tell the news to oil traders and CNBC, please?

Being Foreign in China or in Any Other Countries

Yesterday I happened to see this entry from Silk Road International Blog.(“Foreigners Not Welcome”) I thought I would write something about it – not for my own purpose, but for many foreign people living in China, especially those I know of or those I know are very passionate about China and Chinese people. And some of them even adopt one, two or three Chinese orphans and love them as much as any parents could do their biological children.

For quite long time, I have been a foreigner living in a few western countries and I have been befriended by many friends, colleagues of different races and nationalities. To many of them, I owe appreciations for their help and friendship; I behold their friendship very so much that it is not possible for me to keep silent when I saw the blog entry, for I keep wondering what these friends of mine would think if things like that happened to them?

I am not going to defend or denounce any positions in this blog nor giving my reading on China’s politics. I am trying to avoid saying any political opinions as much as possible — not because that I have none or am afraid of any repercussions of any sort. It is not the purpose of this piece for one, and secondly I bite my political tongue out of respect for any political views of my friends or other readers of this blog may hold about China. All of us may have different views and this blog is not the place for political speech. I simply just want to share some of my thoughts derived from my experiences of a Chinese living in a foreign country and some cultural cues that I believe would be easily understood and shared by any foreigners living in a country other than their native one.

I have no doubt that many Chinese these days may not feel like foreigners in their country for various reasons. The mention in that blog of “a group of relatively well dressed office people” in Shenzhen, the most developed city in China, is even more disturbing. They are supposed to be the beneficiary of China’s economic growth and open policy towards the outside world. I also agree with the author’s view that the fanatic patriotism is not entirely orchestrated by the government or the media, although they have a role to play. Although an authoritarian government is able to tone down patriotic frenzy, China does become more liberal and it is hard to stop people developing any ideas including xenophobia. Unfortunately, growing sense of freedom and technologies can help advance xenophobic ideas as well. See how IM or SMS worked to advocate boycott of the French retailer Carrefour. It is the most vivid display of how modern technologies available to people can work for their cause in this day and age.

When I was first in France many years ago, I was quick to learn “Le Front National” led by Jean-Marie Le Pen, the political party and its leader of notorious anti-foreigners movement in France. I was scared to learn what they were about at the time when my French and knowledge of France even couldn’t allow me to move freely around Paris by myself. I was lucky enough that I was surrounded by many good French people and they were willing to help in any way they could. I lived there for several years while watching Le Pen’s party almost won the primary election, the skinhead parade, and physical attacks or murders of North African immigrants as well as socialists’ street demonstrations of anti-extreme right. All these happened in one country and in the eyes of a Chinese living in a foreign country.

So what did I think?

I was sometime scared to listen and to watch what had happened in France. I was probably lucky that I didn’t encounter any of bad and scary incidents. Even if anything of that kind did happen to me, I refuse to link France or French people to any stereotype of Le Front National. Yes, there are people who do not like foreigners in that country for whatever reasons. That is a fact, and I had to live with it. But I also knew that there were far more friendly people and cooler heads in that country towards foreigners that would easily outnumbered the bad guys I might encounter during my stay. To this day, those events have not bothered me a tad bit to think that France is deeply rooted for liberty, equality and fraternity. And that has nothing to do with the followers of Le Pen’s party.

I do not mean to single out France as a case in point. There are Neo-Nazi in Germany, Russia, and many other countries as well. Even in the US, the country to which I am still a legal Resident Alien (a racist, in my opinion, yet official term of permanent resident), there is this politician called Pat Buchanan saying that millions of oversea Chinese from Singapore to San Francisco hold secrete loyalty to the Chinese government. (See reference) Loyalty to China? I may say it is patriotism. To the Chinese government? I think some overseas Chinese may be insulted. In addition, he did not take his ideas to the street; instead, like Jean Marie Le Pen, he took microphone and broadcast his xenophobic ideas on TV networks or on paper. He brought them to the presidential campaign platform. People cannot stop him doing it in a democracy.

Do I expect Chinese people to do the same if true democracy or freedom is allowed in China, as many foreigners advocated? Yes. It is just normal and a statistical certainty that a tiny percentage of 1.3billion population will make a huge noise and tantalize the media, which in turn, arouses more people’s frenzies. Westerners may find it too ironic that democracy or freedom that they advocated for Chinese so hard will be used against westerners themselves. If that does happen, we still have to bear with it and call it a democracy, don’t we?

I do expect that there is more of xenophobic sentiment growing as China becomes more integrated into the world. This is simply an outcome of China getting more heterogeneous while being integrated into the world. Yesterday, right before reading the author’s post, I happened to have a phone conversation with a person living in Shenzhen, the same city the blog author lives in. One thing that person mentioned to me, quite to my surprise, may be a bit telling: she said she hated to see this torch relay that disturbed many people’s work schedule and in the end, most people saw nothing as there were just too many people on the streets.

Be careful with what we wish for and be prepared for what we wish for. What if the “Chinese Buchanan” airs his anti-foreigners message on TV networks – in the name of freedom of speech? As a foreigner, what would you think of living in China with that type of messages flying around?

I share the author’s frustration and upset. I commend his action to ignore whoever spat racist language to him. I would do the same in the similar situation. I would also like people to know that I believe most of Chinese belittle that behavior. For every one Chinese that you see have anti-foreigner sentiment, there are far more numbers of Chinese who hold genuine hospitality towards foreign people. Or, at least, please count yours truly as one of the many. For the same reason, I believe the author’s statement that for most part of his experiences in China, they are the pleasant ones…

Better, if foreigners bring their money or factory orders to any place west of longitude 110E in China, you would be treated like VIP hand over fist. My point is not that foreigners are welcome because they need investments or business orders, although I do think many Chinese’ work and life depend on that. There is no denial that most Chinese have no reasons to resent foreigners for any particular reasons, despite the torch relay saga or the foreign media’s reports. For the latter, I think the Chinese are coming to the realization that the foreign media is operating on a commercial basis with missions of catching sensational pictures or mind-jolting headlines to attract audience or readership. Even if Chinese are irritated by misleading information reported by the foreign media, their angers are not the source for any long-lasting anti-foreigner movements.

Whatever China is to become in the long term is probably beyond control of any people living there—both native and foreign. We have to accept—the things we like or we do not like. In the case of foreigners living in China, just ignore the latter. This may require a bit of mental preparation for a fast changing China, for better or for worse. For those who are used to the preferential treatment of foreigners, the changes can be quite dramatic. But by my experiences of a Chinese living in different foreign countries, I am pretty much sure that pleasant memories and friendship associated with a foreign country will always overwhelm any bad experiences I may have—if I open the heart and respect people I live with.

Today, I just saw for the first time in a mall the outfits of the 2008 Canadian Olympic Team. They are beautiful. And those three golden embroidered knitting of Chinese Characters of “加拿大” (Canada) along with the English name on the clothes are quite eye-catching in white-red background color. To print Chinese characters on the clothes may be a smart design if it is to win over some Chinese cheering for the Canadian teams during the competitions. Will it work? I am not sure. But I was quite certain that these outfits were “Made in China”. So when I flipped a jersey and saw the tag, I did not get surprised.

No matter what this Olympic Game brings to China, there is no way to shut out China in the world stage. I hope cooler heads both inside and outside China will have a long and hard thinking about this country and wisdom will prevail. I also hope that the current situation would be like any episodes in the past such as boycotting Japanese goods three years ago in China, or, in the American case, the “Freedom Fries” episode in the eve of Iraq war. After all ordeals, China is preparing two lovely Pandas for Japan and Mr. Sarkozy was invited to G. W. Bush’s ranch in Crawford, Texas. Politics and history never fail to remind us constantly how absurd we human being can be.

And most of all, I do hope my friends, in any way related to China, may find comforts from these words of a Chinese who, like many of you, lives in a foreign country. I believe that these thoughts do represent the thinking of a very large percentage of Chinese both inside and outside China. That’s what this blog entry is all about.

Enjoy China if you live or work there, or do both. Enjoy the Games if you are a sport fan.

真的不必太在意

 

我觉得奥运会就是奥运会，他首先是运动员的盛会，其次是体育爱好者的节日。 其他的都不那么重要。如果将政治有意无意地融入到奥运之中， 两者势必都受到影响。

这个火炬传递到底对中国形象的影响是好是坏，真的不必太在意。一个真正的大国，是一个真诚， 包容，开放， 自信而不傲慢的大国–她必定会赢得尊重。

中国有实力成功举办奥运会 — 一届实实在在的体育盛会。 这就达到了目的。 如果再要往其中添加更多的意义， 更多的内涵， 要弄巧成拙了。

有必要这么在意么？

 

 

民调：近半网友认为火炬传递后中国形象变得更差

DWNEWS.COM– 2008年5月10日6:52:20(京港台时间) –多维新闻网

 

多维社记者报导／北京奥运火炬在三大洲传递过程中发生亲藏独和反中国游行示威，并引发中国国内和海外华人社区支持北京奥运、抗议西方媒体歪曲报导示威。随后，中国和奥运话题已成国际社会焦点，而奥运圣火传递也成网友最为关注的主题。

那么，奥运圣火传递之后中国在国际社会的形象是变得更好还是变得更差了呢？

美东时间5月2日晚9时，多维新闻网就这个内容进行民意调查，到美东时间5月9日晚6时止，民调结果显示，约近半网友认为火炬传递后的中国形象变得更差。

共有2605名网友参加了此次民调，其中认为火炬传递之后的中国形象”变得更好”的网友有936人，占35%；认为”变得更差”的网友为1240人，占47%；选择”很难说”的网友有429人，占16%。

 

 

奥运圣火：踏上珠峰直指北京

看到奥运圣火被登山运动员带上珠峰的画面，心里还是很激动的。

这是第二次在电视上看登山运动员冲击8848米的珠峰。头一次大约是五年前看中央电视台直播冲击珠穆朗玛峰。 从那时起”李致新”"王勇峰”就死死地印在我的脑海中。他们将七大洲 的最高峰都踩在脚下， 他们是中国登山队的骄傲， 也是世界上所有登山运动员的标尺。 每次看到大山， 都会产生一种对登山人的由衷的敬意， 更不用说象”李致新”"王勇峰”这样的登山家。

今天，王勇峰第三次踏上珠峰， 并且带领其他登山队员把奥运圣火带到了地球第三极。我相信这是中国登山运动员最真诚的愿望，他们实现了这个愿望。这也是为他们永远攀登，永远向前的精神的所作的一次完美见证。这也是奥运圣火登上珠峰的最终意义。

登上珠峰的奥运圣火在一步一步向北京靠近。真的希望所有的运动员在北京奥运会上奉献出精彩的比赛，我想这是每一个参加奥运会的运动员的终极梦想。这是纯粹的奥林匹克梦想和精神。其他一切都不必在意。奥林匹克是属于运动员的奥林匹克。

祝福运动员， 祝福奥林匹克。

Housing and Oil Market: The End of the Beginning or the Beginning of the End?

 

It is the latter rather than the former, in my view. Basically, I see no light at the end of the tunnel yet-the US housing market has further corrections to go and has high risk of faster deterioration.

So what did the government do about this sinking housing market in the US? Hardly anything for the first four month of 2008. Do I expect anything meaningful from the government in this election year? Of I doubt. It is more talks than any concrete measures. There is no political incentive to give either party’s proposals a green light and let the opponent take credit for any so-call housing market rescue policies.

Timing just couldn’t be worse for the housing market from a political perspective.

So what about the Fed? Its policy lever has already been shifted to the highest gear but unfortunately, the policy is losing tractions day by day. The mortgage rates are hovering above 6% for all durations, either fixed or ARM. The rates are not lower-even by a tad bit-if you compared them to half a year ago. In the meantime, the fed fund rate has dropped by 3 percentage points to 2%. How could you lure people to the housing market when the mortgage rates are 6% and above in the meanwhile, the gasoline price is rocketing?

Thank you very much, the Fed!

No, that is not a cynical “thank-you”. It is full-hearted by oil speculators. You keep pumping the money, and we’ll keep oil on fire! See you there, $200 oil.

My Way or Their Way

Just saw Bloomberg news on the ECB interest rate policy this evening. I sometime couldn’t believe good old Europe can have inflation. That is definitely a fast way of wealth erosion. The way to get under control of inflation is to slow down economic growth, and have recession. Another way is a breakout of war.

In China, it is reported that a household needs to spend 12 years’ entire income (before tax) to buy a house, no eating/drinking. Here, in Canada, it is about 8-10 years-about the same as in the US. This is not going to last. This is the phony market destined to collapse. I don’t understand why it won’t collapse, because it is built upon credit, and credit is feeding on itself to build a bubble, which is running out of the underlying economic support. Otherwise, all textbooks I read and teachers who taught me are wrong, and the economics is left with nothing but money printing doctrine.

If the governments around the world think that there is an easy way of solving unemployment or getting people rich quickly by building houses, they are naïve at best, and cheating people. If the governments issue credit and print money without constraints, like what the Americans are doing now, the possibility of history of 1930s repeating itself is not remote. I’m not eager to see this happen, but I am very respectful of the fact history does repeat and we are not so smart as we think we are.

Enough ranting on a Sunday night.

 

From Bloomberg –

Europe’s Price Surge Persuades Politicians to Back ECB on Rates

By Ben Sills and Gabi Thesing

May 5 (Bloomberg) — The European Central Bank is winning Europe’s political leaders over to its policy of focusing on fighting inflation even as economic growth slows.

Politicians from France, Belgium and Luxembourg, who previously complained that the ECB paid too little attention to economic growth, have signaled increasing concern that inflation is eating away at voters’ incomes.

“There isn’t much appetite for having these inflation levels, whether you’re the monetary authority or government,” Robert Barrie, chief European economist at Credit Suisse Group in London, said. “There’s a recognition that inflation is too high and broader-based support for the ECB to do something about it.”

The ECB has refused to follow the U.S. Federal Reserve and Bank of England in lowering interest rates after inflation surged since August, to reach a 16-year high of 3.6 percent in March. The bank argues that rising prices are a bigger threat to economic growth than the increase in credit costs resulting from the collapse of U.S. subprime mortgages.

The Frankfurt-based central bank is expected to leave the benchmark refinancing rate at a six-year high of 4 percent when policy makers meet in Athens on May 8, according to all 53 economists surveyed by Bloomberg News. The same day the Bank of England will probably leave its key rate at 5 percent after three cuts since December, a separate survey shows.

Less Isolated

ECB President Jean-Claude Trichet said at a meeting of European Union finance ministers in Brdo, Slovenia, that he felt less isolated in his fight against inflation.

“Those living on 300, 400, 500, 600, 700 euros can’t live with runaway inflation,” Luxembourg Finance Minister Jean-Claude Juncker said at the same meeting, where demonstrators protested against price increases. He had opposed the ECB rate increases when they started in December 2005.

As regards inflation, “the responsibility is not only put on central bankers, but also on governments,” Juncker said on May 2.

Soaring food prices have led to political unrest around the world, with Egyptian police clashing with demonstrators and Haitian Prime Minister Jacques Edouard Alexis ousted. The World Bank says 33 countries risk suffering civil disturbances.

United Nations figures showed food was 57 percent more expensive globally in March than a year ago as economic growth in emerging markets such as China, India and Russia pushed up demand for commodities. The price of rice has doubled in the past year and wheat has climbed 65 percent. The price of crude oil has increased 78 percent.

Inflation Concern

Belgian Finance Minister Didier Reynders, who told Les Echos in October that the ECB should consider lowering rates if economic growth slows, suggested inflation concerns are now more pressing.

“We have a concern about inflation due to oil prices, also food prices,” he said April 3. “It is important for monetary policy to do something.”

Some economists say the change of heart won’t last.

“I would not expect the conversion of some leaders to the fight against inflation to last too long,” said Laurent Bilke, an economist at Lehman Brothers International in London, who used to work as a forecaster at the ECB. Support will only hold for “as long as inflation remains the main concern for households, but will wane as signs of the economic slowdown intensify,” he said.

French Prime Minister Nicolas Sarkozy has returned to complaining about the euro’s “incredible” level on April 24, after fretting in February that the quickening pace of inflation “worries” him because it lowers people’s living standard.

`Broader Functions’

“The ECB must have broader functions, with a majority deciding, to go beyond controlling inflation,” Italian Prime Minister Silvio Berlusconi told reporters in Rome April 16 after winning last month’s general election.

The widening interest-rate gap between the euro area and the U.S. sent the euro to a record $1.60 on April 22. The Fed has lowered interest rates seven times since September, to 2 percent, aiming to prevent a recession.

The world’s biggest financial companies have posted at least $319 billion in writedowns and credit losses since the start of last year as the market for mortgages aimed at people with poor credit histories collapsed.

The cooling U.S. economy and the stronger euro are starting to take their toll on Europe. Manufacturing growth slowed for a third month in April and confidence in the economy dropped to the lowest level since August 2005.

Slowing economic growth may not necessarily bring down inflation, according to some ECB officials. Governing Council members Juergen Stark and Yves Mersch have said in the past three weeks that rates may not be high enough to contain inflation. Consumer prices in April rose 3.3 percent from a year earlier, the eighth month it breached the ECB’s 2 percent limit.

“The ECB has become the anti-inflation machine we wanted,” Juncker said April 28.

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.netGabi Thesing in Frankfurt at gthesing@bloomberg.net

A Dead Engine Needs No More Oil

The Fed continued to intervene in the money market with the expanded term auction program. It is designed to encourage banks to lend short term funds to each other, so that liquidity of funds in the financial markets can be created to allow for more commercial loans by the banks to the businesses in general.

This is what the Fed is mandated to do—when the market is seized up by illiquidity and stops acting as intermediaries between lenders and borrowers, the Fed should act as a lender of the last resort. It is an institutional design to avoid any liquidity-driven economic collapse that witnessed in 1929. However, there is no empirical proof that such a design is a cure of liquidity crunch of all types. The formula worked during the 1987’s stock market crash. But when the Japanese economic bubble burst in early 1990s, a prolonged monetary easing which has been in effect up to date, did not put Japan back onto the right economic track. The Japanese income has seen no growth over the past 15 years. It is more than a “lost decade”. Today, Japan’s interest rates are still less than 1% and real interest rate is negative.

Either aggressive cuts of interest rates or quantitative easing failed to stimulate the economy in Japan. Readily available funds has put the Japanese economy into the liquidity trap that money supply is so much that any more monetary easing stops acting as economic stimuli. Rather, Japanese Yen simply flows into other economies or markets as an investment instrument where a higher return can be earned than in the Japanese market. The result is just that incomes for the Japanese have been eaten away by inflation during the past fifteen years in which even nominal wages have hardly seen any increase.

It is reasonable to cast doubt on the current Fed strategy to emulate the Japanese formula to deal with the current economic situation in the US. The damages are most apparent on the financial and housing market—partners in crime that pushed and drained consumers’ buying power to the extreme. It is pretty hard for the Fed to salvage the deteriorating market conditions facing both financial institutions and anybody else who is directly or indirectly related to the housing market. The root cause is that, to borrow an economic cliché that sounds old fashioned but true to the situation, the market has driven itself too far out of balance that self-correction is the only way to fix the problem. This means that the financial institutions are leveraging their balance sheets too hard to be able to sustain any market hiccups; and the consumers are too much indebted relative to their incomes that any asset price corrections become too much of a blow to their financial health.

In this situation, the Fed’s ability to jump start housing market or financial market is very limited. And its strategy, which has no economic proof of soundness and effectiveness, has pushed the Fed into a corner and shut itself off of any way back. The liquidity it pushed to the market is simply too big that the Fed can’t withdraw it any time soon. In another word, the financial system is on morphine for pain relief, but morphine does not cure the disease. It is more worrisome that the Fed has only limited supply of morphine. When it announced additional money supply extended to brokers and dealers together with the term auction facilities to primary brokers in mid-march, the hope was that added liquidity would get the lending machine going. However, it did not happen. Interest rates stopped going down and mortgage rates started rising. By mid April, less than a month after the Fed’s emergency room operations, the US dollar inter-bank loan rates shot up as high as early January in Europe. It has basically undone all the Fed’s efforts to ease lending conditions.

I would expect that the same thing will happen again, if not getting worse, after the Fed announced on Friday another $75 billion swap of its government bonds to commercial banks’ debt instruments. If such action cannot lead the money market to its normal functions, the only effect it produced is that it pushed the economy closer to the liquidity trap. It may be very well closer than we expected.

Contrary to Treasury Secretary, Henry Paulson’s prediction, I do not think the credit crisis is about to end any time soon. Otherwise, there is no need for the Fed to expand its loan programs on Friday. The current situation is not about liquidity crunch; not about the Fed’s actions. It is about the economy that has to adjust itself to less leveraged market demand. The imbalance between the earnings and spending of the American public has to be corrected before any meaningful growth is restored. That is the fundamental reason why banks are reluctant to make loans.

Can the Fed fix this problem by throwing money around? I doubt.