Beware China’s quantitative tightening

[Chris]

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....

[URF8]

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

[Carygrant]

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 .

[Chris]

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

Warning: Other Discussions are for more serious discussion and stricter moderation. The rules apply but, on the positive side, we will also require that all posts make a contribution be it information, question or argumentation, and on the negative side we will not allow trolling, inflammatory remarks, personal attacks, or off-topic comments.

[Chris]

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

[Peter1469]

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).

[Chris]

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

[Peter1469]

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

[Chris]

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.

[Chris]

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.