Exporting Inflation

From Bloomberg:
China Assails Monetary Easing

China renewed an attack on quantitative easing, citing the risk of increased prices in emerging economies, a day after the Group of 20 nations said the markets can adopt regulatory steps to cope.

China “doesn’t support” the monetary easing that causes “imported” inflation in developing countries, Commerce Minister Chen Deming told a forum today in Macau, a Chinese special autonomous region. The capital inflows increase the risk of “asset bubbles,” Jin Zhongxia, deputy director general of the international department at the People’s Bank of China, said at the same forum.

The Group of 20 offered emerging economies cover to limit currency swings and stem asset bubbles. The U.S. Federal Reserve fueled concern in emerging economies last week when it announced plans to buy $600 billion of long-term government bonds to reduce borrowing costs and spur growth in a second round of so- called quantitative easing.

“Major reserve-currency issuing countries excessively print money to get out of their own economic difficulties, posing a policy dilemma for emerging economies,” Jin said in Macau today, without naming any countries. “That will impose greater pressure on capital inflows, bigger bubbles in asset markets and inflationary pressure.


The Fed is up to its old tricks with QE2 and the Chinese, the largest creditor of the United States, is getting frustrated with its insolent borrower. 

The irresponsible practices of the Federal Reserve are causing hot money flows to emerging markets as dollars desperately seek yield.  The assets bubbles this builds are widespread and persistent in China.

Once QE2 fails to re-inflate stocks and revive the economy, then the Fed will embark on QE3, assuming Bernanke does not "see the light".   I continue to be amazed that dozens of scholars with PhDs still deny reality and insist on pursuing impossible solutions.  The most serious question is this - when will the Chinese stop buying Treasuries altogether?  Will Bernanke buy all the bonds the Chinese used to purchase?  Or will austerity finally reach out and shake some sense into the Federal Reserve?


  1. "Sell" signal on SPX today, not clear enough to make me go short but I took the profit from the table! It was a fantastic run from 1080 when I've got the "buy" signal. Another drop tomorrow is going to convince me to go short.


  2. Excellent comment Babaro. I am considering shorting the market myself. Presently I am watching to see if underlying support holds or breaks down. This market may fuel the bears soon.


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