The era of Bernankeism

Financial markets were again jubilant with the announcement that the US Federal Reserve would resume a new round of massive liquidity injection that could exceed US$600 billion. Optimism was fueled with the promise of a river of dollars flowing into markets with traders betting on a strong US economic recovery. It was to be business as usual: the same policymakers and the same stale policies.

Yet after the markets absorbed the full implications of this second round of quantitative easing (QE2), interest rates instead of declining increased rapidly! The bond markets and the bond vigilantes have spoken and they show little confidence in the Fed's announced policies.