* Economists worry liquidity could stoke inflation, bubbles
* Schaeuble says German growth is stable, based on domestic
* U.S. says Germany could do more to boost domestic demand
By Alexandra Hudson and Jason Lange
BERLIN, Jan 8 Policymakers must closely watch
ultra-high liquidity provided by the world's big central banks
to ensure no new asset bubbles form, German Finance Minister
Wolfgang Schaeuble said on Wednesday, reiterating a
"We must keep a watch on liquidity levels to ensure new
bubbles aren't being created," Schaeuble said at a news
conference with visiting U.S. Treasury Secretary Jack Lew.
"We share a responsibility to do everything to prevent new
crises and new bubbles from emerging," he said, adding however
that politicians should not tell central banks how to do their
Many economists worry that unprecedented levels of liquidity
risk stoking inflation or asset bubbles. Janet Yellen, incoming
U.S. Federal Reserve chair, has consistently shot down those
Central banks such as the Fed, the European Central Bank and
the Bank of England have cut interest rates to record lows as
part of their efforts to encourage a durable recovery.
They have also put in place bond-purchasing programmes to
get funds back into the economy. The Fed alone has quadrupled
its balance sheet to about $4 trillion through three massive
bond-buying programmes. Economists expect the ECB may launch a
new bond-buying programme in coming months.
But Schaeuble's comments come at a time when the Fed is
expected to start tapering and excess liquidity in the euro zone
financial system is likely to nearly halve this week as banks
take up less ECB funds.
Schaeuble said Germany's economic growth was stable and
fuelled by domestic demand. His country has come under fire -
notably from the United States - for relying too heavily on
exports and thereby hampering euro zone growth.
In October, the U.S. Treasury said in a report to Congress
that Germany wasn't doing enough to spur its domestic economy,
and that its dependence on exports was putting downward pressure
on wages and prices around the world.
"In Germany, we are seeing good economic progress. We have
some of the most stable growth conditions supported by domestic
demand," Schaeuble said.
"If you exclude Germany the euro zone would have a
deficit.... within the euro zone we do not have a German
surplus, so overall we do make our contribution," he added.
Lew, sitting next to Schaeuble, acknowledged Germany had
made progress on balancing fiscal consolidation with economic
growth but said more could be done.
"Over the course of this past year, I think we've seen very
constructive movement to get the balance right between fiscal
consolidation and growth," Lew said, but added:
"We have made very clear that we think that more domestic
demand and investment would be a good thing. We continue to
believe that policies that promote domestic demand would be good
for the German economy."