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.

Comments

[HamyWanger]

Just because there is an inflationary bubble right now does not mean the Federal Reserve Bank System is responsible for it. It's a coincidence.

Read Dr. Paul Krugman Ph.D. (Nobel Prize in Economic Sciences) on the subject.

[dough eating squid]

-1

[Drag Racer]

r u really that stupid?

[viahj]

no, you got "punked" this was HAMY nort HARRY

[sheeple]

P.ermanent H.ead D.amaged Krugman

[AUD]

Don't forget government bonds Durden.

Government bonds are inflating like a dead sheep in the sun.

[tekhneek]

Dead sheep in the sun eh...?

[CEOoftheSOFA]

I'm not in favor of QE, but the last time I checked, Lui Wei was not an official of the United States.  What would China have done if 43,000 factories closed in China in the last 10 years?

[sushi]

They didn't have to worry about that scenario as rich US capitalists shut down production in CONUS and moved all production to China and then re-exported back to the US. The US government provided tax breaks for this move. The laid off US workers were told that this was all to the good; being unemployed was a benefit of gloabalization.

Did you notice any price drops when cheap Chinese labour replaced workers earning US wages? What? You claim not to have noticed? Not seen a sudden drop in prices for all those goodies you love to buy? Who pocketed the difference? Do you think there is a reason 29% of Americans are on food stamps and 80% of the national income goes to the top 10% of US earners?

[tmosley]

Such an outcome was not possible with their lack of regulations and low taxes.  

Hey, maybe we should try that here!

[David99]

Chinese & ZH observation is 100% correct. FED is creating problems for every one

[centerline]

Inflation or bust.  Got to take the world to it's knees though for consensus to gained (err... forced).  Mutually assured financial destruction... tanks in the street... etc.  That,or the setting of the stage for the shift from central banking in the spotlight to the oncoming political crisis before the whole casino is firebombed.  Hmmm... fun thoughts for a Monday morning!

[absinthejo]

We can talk about commodities prices in a year when there's no setback in production [wheat,cotton...] and rising demand. Fed's actions remain marginal. This is the one thing Krugman got perfectly right. Do you think the Chinese&co would want to tell in broad day-light : "There's not enough production but thank god we got enough cash to cover the limited supply"

[Sudden Debt]

The only sollution to save the EU currently is to actually have a inflation of arround 20% in the next 2 years. So this warning should be read as: IT WILL BE SO.

[Gold...Bitches]

"We had to destroy the currency in order to save it"

[TruthInSunshine]

Bernanke sings "let the emerging market bodies hit the floor" as he creates torrential inflation in developing nations, as the developed world gets hit with a hybrid/mutant strain of bi-flation, and as the U.S. and Europe see longer and more pervasive joblessness (which still has room to run far deeper; beware the coming renewed, relentless downturn) than at any time since Great Depression I in the 1930s...

...and, oh yes, as Wall Street divies up the sweet government nectar that is Obama, Geinthner and Ben Bernanke's unyielding & unconditional love and pays itself record or near record bonuses again in 2011.

Nice job, Ben Bernanke, aka Shiva the god of Death; aka The Bearded Buccaneer; aka King Colostomy Bagman for Wall Street.

[centerline]

"It's good to be the king" - Mel Brookes

[Cash_is_Trash]

The bubble-blowing shall continue as the expasion in the U.S. and foreign money supplies continue. As the article above mentions, interest rates and bank reserve requirements shall rise as well.

the final bubble will end up being the worst before popping and making 2007-8 seem like one small dress rehearsal

I don't think we'll see a correction for 2011. As Mantega said 'the trade war is on'.

[gwar5]

Pretty pathetic when we get more truth from the communist Chinese.

[Sudden Debt]

The Chinese are way better Capitalists then we are.

1. If they see a obstacle, they just ignore it and run it over.

2. What's yours, is them to copy it.

3. Humans are nothing more then cheap slaves.

4. More is More.

5. The great wall of China is build on bones, and they would build it again on bones if it would turn out a profit.

6. When you do business with the Chinese, you're fucked either way to turn it.

The best reference ever of the Chinese was in Deep Space 9: The Chinese where portraied by the Ferengi and their 'Rules of Acquisition'

1. Once you have their money ... never give it back.
2. Never pay more for an acquisition than you have to.
3. Never allow family to stand in the way of opportunity.
4. A man is only worth the sum of his possessions. (From Enterprise, episode "Acquisition"; sloppy script-writing, as rule 6 (see above) was already given in DS9)
5. Keep your ears open.
6. Small print leads to large risk.
7. Opportunity plus instinct equals profit.
8. Greed is eternal.
9. Anything worth doing is worth doing for money.
10. A deal is a deal ... until a better one comes along.
11. A contract is a contract is a contract (but only between Ferengi).
12. A Ferengi without profit is no Ferengi at all.
13. Satisfaction is not guaranteed.
14. Never place friendship above profit.
15. A wise man can hear profit in the wind.
16. Nothing is more important than your health--except for your money.
17. There's nothing more dangerous than an honest businessman.
18. Never make fun of a Ferengi's mother ... insult something he cares about instead.
19. It never hurts to suck up to the boss.
20. Peace is good for business.
21. War is good for business.
22. She can touch your lobes but never your latinum.
23. Profit is its own reward.
24. Never confuse wisdom with luck.
25. Expand, or die.
26. Don't trust a man wearing a better suit than your own.
27. The bigger the smile, the sharper the knife.
28. Never ask when you can take.
29. Good customers are as rare as latinum -- treasure them.
30. There is no substitute for success.
31. Free advice is seldom cheap.
32. Keep your lies consistent.
33. The riskier the road, the greater the profit.
34. Win or lose, there's always Hyperian beetle snuff.
35. Home is where the heart is ... but the stars are made of latinum.
36. Every once in a while, declare peace. It confuses the hell out of your enemies.
37. Beware of the Vulcan greed for knowledge.
38. The flimsier the product, the higher the price.
39. Never let the competition know what you're thinking.
40. Ask not what your profits can do for you, but what you can do for your profits.
41. Females and finances don't mix.
42. Enough ... is never enough.
43. Trust is the biggest liability of all.
44. Nature decays, but latinum lasts forever.
45. Sleep can interfere with profit. (DS9 season 2, episode 7 - "Rules of Acquisition")
46. Faith moves mountains ... of inventory.
47. There is no honour in poverty.
48. Dignity and an empty sack is worth the sack.
49. Treat people in your debt like family ... exploit them.
50. Never have sex with the boss's sister.
51. Always have sex with the boss.
52. You can't free a fish from water.
53. Everything is for sale, even friendship.
54. Even a blind man can recognize the glow of latinum.
55. Wives serve, brothers inherit.
56. Only fools pay retail.
57. There's nothing wrong with charity ... as long as it winds up in your pocket.
58. Even in the worst of times someone turns a profit.
59. Know your enemies ... but do business with them always.
60. Not even dishonesty can tarnish the shine of profit.
61. Let others keep their reputation. You keep their money.
62. Never cheat a Klingon ... unless you're sure you can get away with it.
63. It's always good business to know about new customers before they walk in the door.
64. The justification for profit is profit.
65. New customers are like razortoothed grubworms. They can be succulent, but sometimes they can bite back.
66. Employees are rungs on the ladder of success. Don't hesitate to step on them.
67. Never begin a negotiation on an empty stomach.
68. Always know what you're buying.
69. Beware the man who doesn't make time for oo-mox.
70. Latinum lasts longer than lust.
71. You can't buy fate.
72. Never be afraid to mislabel a product.
73. More is good ... all is better.
74. A wife is a luxury ... a smart accountant is a necessity.
75. A wealthy man can afford anything except a conscience.
76. Never allow doubt to tarnish your love of latinum.
77. When in doubt, lie.
78. Deep down everyone's a Ferengi.
79. No good deed ever goes unpunished.
80. [Quark's rule] When Morn leaves, it's all over.