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QE's impact around the world

 
Think Tank
Raphael Bostic,
 Ph.D.
Director of the Bedrosian Center on Governance at the University of Southern California
Previously Assistant Secretary for Policy Development and Research at the U.S. Department of Housing and Urban Development
Richard Green,
 Ph.D
Director of the Lusk Center of Real Estate at the University of Southern California
Previously Chair of Real Estate Finance at The George Washington University School of Business
Peter Muoio,
PhD, CFA
Managing Director at Auction.com
Senior Principal of Maximus Advisors with over 25 years of experience in real estate research

This is the second installment of HSH.com’s Think Tank series which features in-depth question and answers from the nation’s top real estate professors and professionals.

The Federal Reserve’s Quantitative Easing program has provided great benefit to American home buyers and homeowners in the form record-low mortgage rates. But what has come in the form of aid to the American economy has actually had the opposite effect on other economies around the world.

We asked Raphael Bostic, Ph.D., director of the Bedrosian Center on Governance at the University of Southern California, Richard Green, Ph.D., director of the Lusk Center of Real Estate at the University of Southern California, and Peter Muoio, Ph.D., Managing Director at Auction.com to offer their perspectives on what impact the tapering of QE will have on some the emerging economies around the globe.

Q: How will the reduction in QE impact the emerging markets of Brazil, Russia, India and China, and how will these BRIC economies then influence the U.S.?
Raphael Bostic, Ph.D.
Director of the Bedrosian Center on Governance at the University of Southern California

A: Each of these countries each has their own stories and their own uncertainties. Growth has slowed in China, Brazil’s infrastructure is growing, they’ve become more productive, and India is ripe for growth. That said, I’m not really sure of the impact. But these countries won’t fully withdraw their support from the U.S. through trade and investment dollars since they all depend on the U.S. economy to succeed.

Richard Green, Ph.D.
Director of the Lusk Center of Real Estate at the University of Southern California

A: China is the one that matters most. We do the most trading with them, so it’s really China that matters. Investor money flowing out of other countries and back into the U.S. (as a result from the Fed’s QE reduction) will boost the value of the dollar, making trading with the U.S. less profitable for these other countries. The cost of doing business will increase for the BRIC economies.

Peter Muoio, Ph.D.
Managing Director at Auction.com

A: I love this question. I don’t think there are enough people considering this. These foreign markets see the tapering of QE as a negative because investor dollars could leave their country and be invested elsewhere. However, if the Fed means what it says, that it will only taper QE in the face of economic growth, it’s a positive in the sense that their trading partner, the U.S., is in a growing phase and can thus import more.