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Thread: Beware China’s quantitative tightening

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    Beware China’s quantitative tightening

    Interesting, while we're engaged in more quatitative easing, Beware China’s quantitative tightening
    Last week, confirmation of a fresh round of quantitative easing by Fed chairman Ben Bernanke, lifted equity markets all the way to Asia.

    But given the shift eastwards in the growth dynamics of the world economy, perhaps it’s the actions of the People’s Bank of China (PBOC) we should be more focused on.

    After all, in the aftermath of the Lehman financial crisis, it was China — not the U.S. — that deployed a mega stimulus that helped lift not just its own economy, but everything from commodities and luxury goods to properties from Hong Kong to Vancouver.

    Perhaps unsurprisingly, it has also been China that created the majority of new money globally in the past five years supported by its bulging trade surpluses.

    Now, however, some analysts are warning China’s money tap is running dry and this could trigger the next major deflationary shock....

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    waltky (11-14-2012)

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    I think the entire world may be teetering on the edge of recession.

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    With governments doing this and that to save the world but only making it worse.

    "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
    ~Friedrich von Hayek

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    China allowed its money supply to grow into a bubble. If it doesn't tighten up policy they will have a crash. They are much less able to wait out crashes since they have so many people not on the government dole (unlike the US).

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    The question is, to me, what effect Chinese QT will have on us with our QE and the rest of the world.

    Won't it have the same effect as the Fed raising interest rates so banks would hold their excess reserves* while at the same time printing money in QE1 and QE2.

    It's like we're butting heads internationally and nationally. Not all that intelligent.


    * The Fed Should Stop Paying Banks Not to Lend

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    Didn't Paul Volcker tighten the money supply to solve the stagflation problem?

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    Man, that goes way back, Carter years. I think Volcker did both, tightened then eased. But I'd bet he raised bank reserve interests rates when he tightened, and lowered when he eased, at least that would make sense, unlike now.

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    Not exactly to the point but in this episode of The Invisible Hand Podcast Gondek interviews William Silber who recently wrote a book the life of Federal Reserve Chairman Paul Volcker.

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    Cool

    Chinese economy gettin' to be a tough nut to crack...

    China’s Next Leaders Inherit Economy at Critical Crossroad
    November 13, 2012 — China's leaders have renewed pledges to boost the economy over the next 10 years during meetings this week in Beijing. But the economic challenges China's incoming leaders face are much more difficult than the challenges their predecessors faced a decade ago.
    China’s aspirations for its economy over the next decade have come up repeatedly at the National Party Congress, in discussions on the sidelines of the meeting and in state media’s coverage of the event. It also figured prominently in the opening speech of outgoing President Hu Jintao. In his address, Hu mentioned the economy 104 times in a wide range of contexts. Economic development was mentioned more than a dozen times, as was former Chinese leader Deng Xiaoping’s catchphrase "gaige kaifang," or, "reform and opening up."

    And while the risks China’s economy is facing were not mentioned as much, they were not ignored. Hu’s most direct comment on the challenges the country faces came when he said the opportunities and risks China face are not like anything before. This year China’s economy is slowing to its slowest growth rate in more than a decade. And although the projected year-on-year growth rate of around 7.5 percent remains enviable to many countries, that is nearly half of what it was just five years ago.

    Zhang Ping, head of China’s National Development and Reform Commission voiced confidence that the economy was improving, despite the slowdown. But he acknowledged there are still contradictions that need to be addressed. Zhang says that China still lacks a balanced, coordinated and sustainable development, and its growth model is very crude. He says that along with the weakening overseas demand, China still has excessive production capacity in several sectors.

    "We still lack a balanced, coordinated and sustainable development, and our growth model is still very crude. And along with the weakening overseas market demand, we still have an excessive production capacity in several sectors," he said. "There are also structural problems that need to be adjusted. It will take some time to solve these problems. These contradictions are having some impact on the development of domestic economy."

    MORE

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    Quote Originally Posted by URF8 View Post
    I think the entire world may be teetering on the edge of recession.

    Gosh and golly . Einstein is back .
    Carygrant told you that years ago . Blimey that's me .

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