Monday, September 7, 2009

China: What Greenspan did wrong, and threatening to dump the dollar

You know you have hit the skids as a capitalist country when the Chinese are critiquing your central government policies like a robber baron watching a drunk spend his salary on Friday night:

Mr Cheng said the Fed's loose monetary policy was stoking an unstable asset boom in China. "If we raise interest rates, we will be flooded with hot money. We have to wait for them. If they raise, we raise.

"Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down."

Mr Cheng said China had learned from the West that it is a mistake for central banks to target retail price inflation and take their eye off assets.

"This is where Greenspan went wrong from 2000 to 2004," he said. "He thought everything was alright because inflation was low, but assets absorbed the liquidity."

And, by gosh, the Chinese actually start to sound like ... Ron Paul(?):

Cheng Siwei, former vice-chairman of the Standing Committee and now head of China's green energy drive, said Beijing was dismayed by the Fed's recourse to "credit easing".

"We hope there will be a change in monetary policy as soon as they have positive growth again," he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

"If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said.

China's reserves are more than – $2 trillion, the world's largest.

"Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets," he added.

US Fed printing fiat money ... currency collapse ... gold as an alternative reserve currency ...

When they are not busy order extra kidneys from condemned criminals or tracing down the email addresses of their critics, those old men in Bejing can display some amazingly libertarian financial analysis.

[The first clause of that last sentence, kavips, probably explains why you can't access Delaware Libertarian from China.]


Bowly said...

The first clause of that last sentence, kavips, probably explains why you can't access Delaware Libertarian from China.

I didn't know he was here, too. At the risk of sounding like an advertisement, I highly recommend Witopia's VPN service.

Delaware Watch said...

Never forget what the Chinese equivalent of Congress said in the early 80s: "We will embrace capitalism to enhance socialism." Also don't forget that it is now permissible to say in China (it's even taught in their schools) that one of Mao's errors was that he tried to foist a socialist economy on an agrarian society.

Put those 2 together and you get Marx: viz., that a socialist economy can only successfully emerge from a thoroughgoing capitalist one. That's why I think all those foreign companies that invest in China, especially factories, are in for a rude awakening. Those assets will be seized at the point the Chinese Communist Party believes China has the industrial infrastructure to support socialism. And no one will be able to stop them.