China Inflation Scramble Is Now Official As World's Second Largest Economy Prepares For Cold War With U.S.
Here comes the China liquidity post-sugar high crash. In comments published tomorrow (no, not an Art Cashin brain teaser), a senior government economist said that surging money supply is leading to inflation. Yet, since in China apparently you can be half pregnant (preferably with one and a half boys), the recommendation from the government is to increase reserve requirements instead of interest rates. The implication is that it is only a matter of time before both end up getting hiked.
Market News reports that National Bureau of [True and Unmanipulated] Statistics chief economist Yao Jingyuan said "Money supply is too big and that's leading to excess liquidity." Yet Yao Jing said he would "prefer reserve hikes to rate hikes because rate hikes could cause hot money to flow back."
Consumer price inflation ticked up to 1.9% y/y in December, only the second month since the outbreak of the financial crisis that consumer prices have been in positive territory.
The People's Bank of China raised the reserve requirement on January 18, the first time since June 2008 that it has done so, in response to the massive volume of credit extended by banks in the opening weeks of the year.
Another reserve hike is certainly imminent, very likely soon to be followed by an interest rate increase as well. Yet look for the dollar peg to continue until the bitter end: ironically, the Yuan lost value on Monday, as China set the parity from 6.8272 to 6.8273.
And as if this was not disturbing enough, in other news, the TimesOnline reports that "more than half of Chinese people questioned in a poll believe China and America are heading for a new "cold war."
The finding came after battles over Taiwan, Tibet, trade, climate change, internet freedom and human rights which have poisoned relations in the three months since President Barack Obama made a fruitless visit to Beijing. According to diplomatic sources, a rancorous postmortem examination is under way inside the US government, led by officials who think the president was badly advised and was made to appear weak. In China’s eyes, the American response — which includes a pledge by Obama to get tougher on trade — is a reaction against its rising power.
Yes, alas, this means war.
Almost 55% of those questioned for Global Times, a state-run newspaper, agree that “a cold war will break out between the US and China”.
An independent survey of Chinese-language media for The Sunday Times has found army and navy officers predicting a military showdown and political leaders calling for China to sell more arms to America’s foes. The trigger for their fury was Obama’s decision to sell $6.4 billion (£4 billion) worth of weapons to Taiwan, the thriving democratic island that has ruled itself since 1949.
“We should retaliate with an eye for an eye and sell arms to Iran, North Korea, Syria, Cuba and Venezuela,” declared Liu Menxiong, a member of the Chinese people’s political consultative conference.
He added: “We have nothing to be afraid of. The North Koreans have stood up to America and has anything happened to them? No. Iran stands up to America and does disaster befall it? No.”
Apparently it doesn't end there:
“This time China must punish the US,” said Major-General Yang Yi, a naval officer. “We must make them hurt.” A major-general in the People’s Liberation Army (PLA), Luo Yuan, told a television audience that more missiles would be deployed against Taiwan. And a PLA strategist, Colonel Meng Xianging, said China would “qualitatively upgrade” its military over the next 10 years to force a showdown “when we’re strong enough for a hand-to-hand fight with the US”.
Chinese indignation was compounded when the White House said Obama would meet the Dalai Lama, the exiled spiritual leader of Tibet, in the next few weeks.
“When someone spits on you, you have to get back,” said Huang Xiangyang, a commentator in the China Daily newspaper, usually seen as a showcase for moderate opinion.
In retrospect, we have nothing to worry about: the amazing Hillary Clinton will make sure all shall be well... Until D.C. one day wakes up in a 3 foot snow blizzard mixed in with far more than the RDA of alpha, beta and gamma radiation.