
China alarmed by US money printing - chaostheory
http://www.telegraph.co.uk/finance/economics/6146957/China-alarmed-by-US-money-printing.html
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Kadin
I agree with one of the commentators below the article ("B.Karn") that there
always seems to be a bit of a "Clever Chinaman" undertone in these US/China
articles. The Chinese do not have an enviable position; they're in serious
trouble, and quite possibly in deeper trouble than the U.S.

There's some not-well-concealed racism, reminiscent of the old "Crafty Jew"
banker stereotypes, in the amount of credit the Chinese get. No matter what
happens, it's always part of their master plan or to their advantage, at least
as it's reported breathlessly in some quarters.

It looks to me like they're screwed pretty badly, that they bet on the same
sort of endless growth that burned everyone else, and their economic advice is
the equivalent of the guy in the low-lying end of the boat giving suggestions
on how everyone might bail faster.

~~~
DenisM
It's probably less of racism and more of narrative fallacy - people just like
to think there is some sort of a plan and a story to go with it.

But it's a keen observation.

~~~
fauigerzigerk
Yes, and the more secrecy there is the more everything appears to be part of a
grand plan.

Another such fallacy is to always assume that what happens is the result of a
successful plan, when it's most probably the result of many conflicting plans
with variying degrees of success plus a lot of randomness mixed in.

------
nick-dap
A couple of weeks ago a friend pointed me to a blog entry about the coming
inflation since the Fed supposedly printed vast quantities of new money. The
blog entry felt very religious in proving someone defined as "deflationists"
wrong, so I didn't think much of it.

I am very much interested in open government data so I wondered how much of
the financial data is actually available from the Fed in its raw form.

It started as me wondering how full of shit this guys is and turned into five
to six hours of trying to understand the raw data that is readily available
from the Fed online. Their website is surprisingly good.

What I saw did not make me happy. The Feds actions resulted in an EXPONENTIAL
increase in monetary base of our economy:
<http://en.wikipedia.org/wiki/Monetary_base> Note that all I did is plot the
numbers that the Fed supplies:
<http://img180.imageshack.us/img180/2792/44768686.png>

It seems that all those "bad mortgages" that the Fed bought were not bought
with "debt." The Fed bought them with freshly printed bills. Go on the Fed's
website and download the data for yourself, don't take my word for it.
Regardless, I dismissed my findings as "I don't actually know what I'm doing"
and forgot about it.

This article however is absolutely in line with what I saw happening from the
raw economic data, so it makes me wonder. We _did_ print exponentially more
money than we have ever done before. Look
<http://img180.imageshack.us/img180/2792/44768686.png> The Fed literally
DOUBLED the amount of money in our monetary base in a matter of months. I
can't imagine the Fed being able to take that much money out of circulation in
nothing less than years. I also can't image how that could not be a very bad
thing.

Another thing that I saw is a rather sharp increase in how much banks are
keeping in reserves since the Fed now guarantees interest on reserves.
[http://www.federalreserve.gov/newsevents/press/monetary/2008...](http://www.federalreserve.gov/newsevents/press/monetary/20081006a.htm)

All this money in reserves has nowhere to go but into the economy once banks
start spending it. It also pisses me off that our banks were essentially given
a lot of money (when you see a doubling of money in the economy, thats a lot)
for them to sit on and for us to pay interest on it!

I am failing to understand the Feds plan. Can anyone enlighten me or is it
really this simple?

~~~
fauigerzigerk
I think the concern is justified. However, considering Japan during the 90s
and the Great Depression makes deflation appear much more dangerous and
persistent than inflation because no one knows how to fight it once it's
become entrenched.

We know how to fight inflation. Interest rates can be raised without limit.
They cannot fall without limit. The Fed can sell the bonds they are now buying
back into the market and thus reduce money supply.

And you need to consider two other facts. First, the monetary base you plotted
is just a small fraction of overall money supply (M1, M2, M3). Other parts of
the money supply are growing as well but not as fast. Second, money that isn't
used has no effect on inflation. The speed of circulation is sharply reduced
in recessionary times and that's why the amount of money has to be sharply
increased to counteract that potential deflationary spiral.

The line you want to plot is the amount of all monies (the Ms) normalized over
the speed of circulation. That line is flat to falling, but it's true that
there is a potential for a sharp rise down the road.

Inflation is very likely in say two years time. It's very difficult,
politically, to raise interest rates while unemployment is still high. And
inflating debt away is rather convenient for a heavily indebted nation like
the US as well.

~~~
likpok
The Fed has made politically difficult decisions in the past. During the 80's,
they kept interest rates high, despite the massive unemployment.

~~~
jhancock
They certainly did not make politically difficult decisions over the last
decade, which would have been to cool off the growth. They generally only make
these difficult decisions in hard times, not good times.

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00A5
As we continue de-valuing the dollar, China and other investors will convert
their assets (cash being diluted by the fed) to physical assets and ownership
equity (real estate and stocks). It's in their interest, and we provide the
money management services to handle-hold them through it. This is not
alarmist, but the US will be somewhat different with significant ownership by
Chinese investors (in addition to the existing Dutch, Japanese, Saudi
investors).

~~~
lsc
isn't this what they said about japan in the 80's? I mean, I'm not saying you
are wrong, but I'm just saying that last time this happened we ended up buying
our stuff back for pennies on the dollar.

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savantguy
The chinese are planning way ahead, think decades.

Inflation != rising prices

Inflation = Increase in the money supply

Inflation HAS already happened, now the symptoms will start to accelerate.

Hyperinflation is always a monetary event, not an economic event.

Fiat currency is based on confidence in the government among other things.

Gold is a bet against the government.

~~~
philwelch
China has some of the world's largest reserves of USD. It seems their bet is
on the US government.

