Treasury Outlook

Over the past two weeks, the United States has announced two more trilliondollar packages.

The Federal Reserve, the US central bank, said it would buy a total of US$1.15 trillion (Bt41.3 billion) in mortgagebacked debt and government bonds.

And the Treasury Department announced a plan to buy up to $1 trillion of bad debt from banks, using a combination of public and private funds.

Underlying these dramatic efforts is a fear of repeating the mistakes of the 1930s.

US policies exacerbated the Great Depression by leading to a onethird contraction in money supply, thousands of bank failures, trade protectionism and a deflationary cycle.

After the new packages were announced, the value of the US dollar dropped against most currencies - including against the bath, which strengthened from 35.80 to 35.30 within the space of two days.

Since then, the dollar has rebounded somewhat. However, there is real concern about debt levels and money supply in countries with very aggressive policies.

Currency markets should remain volatile, as investors are uncertain about the impact of policy measures around the world.

However, one likely trend in the short term is a preference for currencies from regions, such as the European Union, where monetary policy has been more conservative.

Fixing a financial system meltdown is no easy matter. One only has to look at Thailand.

Almost 12 years after the tom yum goong crisis, the government still owns large stakes in assorted banks.

It still has outstanding debts of more than Bt1 trillion that were used to bail out local financial institutions- with no prospects of repayment anytime soon.