El-Erian Worries that Without Structural Changes, QE2 and 'QE3' Could Hasten Brazil and China to Overheat and Promote FX Pressures on the Euro and Yen ..

The Federal Reserve Board's latest round of quantitative easing won't be completely sufficient to tackle the economic problems in the U.S. while exacerbating global currency tensions and eroding the U.S.' prime role in the world economy, according to Pimco Chief Executive Mohamed El-Erian.
.
The Fed said on Wednesday that it would buy long-term Treasury bonds, pumping an additional $600 billion into the U.S. economy, through June.
.
"Liquidity injections and financial engineering are insufficient to deal with the challenges that the U.S. faces," writes in an editorial on the Financial Times' website, citing the Fed's need for coordinated support from other federal agencies. "Without meaningful structural reforms, part of the Fed's liquidity injection will leak right out of the U.S. and result in yet another surge of capital flows to other countries."
.
These outflows to other nations will create problems for other economies and currencies, he writes.
.
"Several emerging economies, such as Brazil and China, are already close to overheating," El-Erian writes. "And the euro zone and Japan can ill afford another appreciation in their currencies."
.
The Pimco executive says the Fed's move helps undermine the U.S.' role as "the provider of both the world's reserve currency and its deepest and most predictable financial markets.
.
"No other country or multilateral institution can displace the U.S.," he writes, "but a combination of alternatives can serve to erode its influence over time."
.
El-Erian expects that the Fed will have to act again soon.
.
"With domestic outcomes again falling short of policy expectations, it is just a matter of time until the Fed will be expected to do even more," El-Erian writes. "And this means Wednesday's QE2 announcement is unlikely to be the end of unusual Fed policy activism."
.
Next time, he writes, additional Fed easing should accompany coordinated efforts with the U.S. government and international economies.
.
Full story at http://www.ft.com/cms/s/0/af370888-e77e-11df-b5b4-00144feab49a.html?ftcamp=crm/email/2010113/nbe/BreakingNews1/product
.
-Dow Jones Newswires; 212-416-2900
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=g7waOW3b7LFS2%2FQTZF%2FfMg%3D%3D. You can use this link on the day this article is published and the following day.
.
(END) Dow Jones Newswires
November 03, 2010 17:12 ET (21:12 GMT)
Copyright (c) 2010 Dow Jones & Company, Inc.- - 05 12 PM EDT 11-03-10