The United States should "recall" its harmful and "toxic" financial products and ascertain where the responsibility lies instead of pumping money into its financial system, a Chinese economist told Xinhua in a recent exclusive interview.

"The Wall Street financial innovation had deepened the worldwide crisis. The current situation is like a building on fire: dangerous, but we do not know when it would collapse," said Yang Bin, economist with the Chinese Academy of Social Sciences, a government think tank.

According to Yang, the current financial crisis, which has dragged down the global economy, is the result of the U.S. financial bubble caused in the name of financial derivatives.

In fact, those financial derivatives had spread economic risks and might even cause further waves of financial tsunami, he said.

The U.S. government had taken moves to deal with the problem, Yang said, but the current policies could only lead to a worse crisis.

The Obama administration unveiled a program last week, which would use 75 billion to 100 billion dollars in Troubled Assets Relief Program (TARP) capital and capital from private investors, while the Public-Private Investment Program will generate 500 billion dollars in purchasing power to buy legacy assets with the potential to expand to 1 trillion dollars over time.

The move was aimed at cleansing toxic assets from bank balance sheets that had frozen up lending and fueled the recession.

The U.S. Federal Reserve Board also said earlier this month that it would buy 300 billion U.S. dollars in longer-term Treasury bonds and 750 billion U.S. dollars in mortgage securities and agency debt over the next six months, in a move to improve conditions in private credit markets.

Yang pointed out that such policies would lead to acceleration in the United States' money supply, which could only turn the world from "deflationary recession" to "inflationary recession" and eventually lead to economic breakdown and vicious inflation.

The blame would extend to all other countries, which would face immense loss in their foreign exchange reserves, or even see them crumble to dust if such a tragedy really took place, he said.

Yang suggested that the U.S. government divide the bad debts into two categories. One is treasury bonds which had been bought with real money and should be guaranteed in the first place, such as retiree pensions, and U.S. government bonds that many other countries had invested in with their forex reserves.

The other one is the bad debts resulting from financial speculation, which should be abandoned, or else it would result in vicious inflation, he said.

"Such bad debts are like time bombs to the world financial system, and we should freeze and write them off before they explode and bring economic destruction. Abandoning them will not influence the real economy," said Yang.

(Xinhua News Agency March 30, 2009)