China SAFE Official Warns Fed Monetary Policies Are Creating Inflationary Bubbles, Stimulate Global FX Intervention
Liu Wei, a director with China's State Administration of
Foreign Exchange, the foreign exchange reserve manager responsible for administering $2.6 trillion in FX reserves, told Caing.com today that "Quantitative easing carried out by the U.S. Federal
Reserve could exacerbate global currency interventions, hurt the
developed countries and fuel flows of speculative capital into emerging
market economies." Additionally, and contrary to all those who believe that commodity prices have in some cases tripled over the past year based purely on goodwill and not excess money, Wei also said that the Fed's quantitative easing program may have some
stimulus impact on the U.S. in the short term, but also that it could
add to global inflation pressure and fuel asset bubbles "so that the
global economic recovery and growth face greater uncertainty." Pretty much as we have been claiming all along.
Market News has more:
The easing could hurt the European economies and other those of other developed countries and add to speculative inflows into the emerging markets.
It could "increase the pressure on currency appreciation in emerging market countries, and increase already-high inflationary pressure.
He said that quantitative easing could "strengthen dollar depreciation expectations in the rest of the world and could force other countries to intervene against currency appreciation, even by depreciating their currencies."
Brazilian Finance Minister Guido Mantega said in an interview published earlier Monday that currency interventions are fueling the risk of a global trade war, singling out the U.S. and China as the chief perpetrators.
Liu also said that China will use a full array of monetary policy tools to counter inflows of speculative "hot money," including the exchange rate, interest rates and the commercial bank deposit reserve requirement.
That said, China continues to refuse to acknowledge that its own misguided policy of not admitting inflation, when virtually every excess dollar goes into developing world equities, is not the most prudent ever.
"Most cross border capital inflows have real trade and investment purposes. There are some hot money inflows but that's not the mainstream so we shouldn't overestimate the scale of hot money," he said.
"It's mainly about making good use of the exchange and interest rates and use the reserve requirement ratio and PBOC sterilization tools to enforce supervision."
So basically same old: the Fed pretends its actions are creating jobs (which are part-time at best), while in reality they are creating ever greater inflationary air pockets in places like China, and China is happy to admit that Fed policies are wrong, but does little to actually pop said bubbles except for cosmetic fine-tuning here and there, as it attempts to redirect inflation back to the US, where the final bubble will end up being the worst before popping and making 2007-8 seem like one small dress rehearsal.
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