How The Fed Crushed China's Ability To Join The Ease-Fest

Tyler Durden's picture


It will not come as a surprise to anyone who has spent any time reading Zero Hedge (here, here, and here very recently) but now yet another one of our 'crazy fringe blog' non-consensus ideas - the fact that China is cornered by inflation concerns and unable to ease aggressively - has now been confirmed by none other than the Bank of China and Bank of Korea themselves. As the WSJ reports, "The rise in global liquidity could lead to rapid capital inflows into emerging markets including South Korea and China and push up global raw-material prices."

The latest round of easing by the U.S. will increase inflationary pressures for emerging-market economies, Mr. Chen said. "This contributes to a monetary-policy dilemma for Chinese authorities", he added. While markets have looked for signs of more forceful action by China's leaders to rekindle growth, some officials attribute the government's caution to fears of reigniting inflation.

This confirms previous comments by the PBoC that "A domestic policy may be optimal for the U.S. alone. However at the same time it is not necessarily optimal for the world," he said at the time. "There is a conflict between the U.S. dollar's domestic role and its international settlement role."


Via WSJ: Harsh Words From Beijing, Soeul

BEIJING--Chinese and South Korean central-bank officials criticized the U.S. Federal Reserve's latest easing efforts and advocated reducing Asia's dependence on the U.S. dollar.


The comments Thursday, at a joint seminar in Beijing by the two central banks, are the clearest indication yet of a rising backlash in Asia against U.S. monetary policy, suggesting it could speed up the search for alternatives to the dollar as the main global currency.


"The rise in global liquidity could lead to rapid capital inflows into emerging markets including South Korea and China and push up global raw-material prices," said Bank of Korea Gov. Kim Choong-soo. "Therefore, Korea and China need to make concerted efforts to minimize the negative spillover effect arising from the monetary policies of advanced nations."




Asia needs a "regional core currency" to reduce its dependence on the dollar. China's ultimate goal is for the yuan to be as important as the euro or the dollar, he said.




The latest round of easing by the U.S. will increase inflationary pressures for emerging-market economies, Mr. Chen said. This contributes to a monetary-policy dilemma for Chinese authorities, he added. While markets have looked for signs of more forceful action by China's leaders to rekindle growth, some officials attribute the government's caution to fears of reigniting inflation.


"On the one hand, China needs to stabilize growth, but on the other hand China is very worried about a property-price rebound," Mr. Chen said.




The Korean and Chinese economies are also likely to be affected differently by the Fed's easing. The freer flow of South Korea's currency, the won, means sudden rushes of capital can destabilize the financial system quickly, while China's tighter controls means pressures build more slowly.


Mr. Kim of the Bank of Korea is already on the record fretting about the effects of QE3 on Korea. Earlier this month he said that the Bank of Korea may need to take steps to curb the potential influx of liquidity into South Korea.




"A domestic policy may be optimal for the U.S. alone. However at the same time it is not necessarily optimal for the world," he said at the time. "There is a conflict between the U.S. dollar's domestic role and its international settlement role."


A year earlier, Mr. Zhou argued in an influential essay that the world should move to a multicurrency system, including an increased role for Special Drawing Rights, a synthetic international currency created by the International Monetary Fund.


Mr. Kim said Thursday that China and Korea should consider making the two countries' bilateral currency-swap agreement permanent.




Both countries should also try to use the yuan and the won in bilateral trade, to cut costs and reduce their reliance on the dollar in transactions, Mr. Kim said. In the long-term, the two countries may consider setting up a won-yuan foreign-exchange market, he added.

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Thu, 09/27/2012 - 20:39 | 2837260 vast-dom
vast-dom's picture

China PLEASE dump ALL US PAPER ASAP! It is the ONLY way to right all of this Central Planning meddling madness. 



Thu, 09/27/2012 - 21:05 | 2837310 Muppet of the U...
Muppet of the Universe's picture

LOL.  That's the day the gold charts break forever...  the eur/usd breaks and returns to 1:1 plummet... & massive inflation of basic necessities and massive deflation of industrial products explodes.

Das Judaen wins then = NWO & permanent slavery and corruption.

Thu, 09/27/2012 - 21:17 | 2837337 fnord88
fnord88's picture

the petro-dollar is in its death throws. Countries are trading oil and goods outside of the US dollar more and more. When the point of inflexion comes, the tidal wave of US dollars returning home will be the catalyst for massive inflation, and the death of the dollar. Can't see it lasting more than another 18 months myself. Got Gold?

Thu, 09/27/2012 - 21:29 | 2837365 Muppet of the U...
Muppet of the Universe's picture

Well.  That's why the U.S. will have to instate draft and launch LOL "freedom fighters" in oil producing nations.  XD.  As long as we control the majority of oil producing nations, China can't get oil...  So China can't drop the dollar until it cen be oil self-sufficient!  LOLOLOL.  It's hilarious we have muppets for voters and muppets for leaders and slopeheaded jews for masters.  This world turned out just fine...

This is why Iran is gonna get a foot up its ass if it doesn't stop supplying oil to india and china, i mean building nukes...  :D   & ftw, Iran probably will nuke das judaen if the U.S. invades.  Outside the muppets of the America, people really really really fucking hate jews.  Especially the people who have to live next to them.  XD

Thu, 09/27/2012 - 21:33 | 2837374 fonzannoon
fonzannoon's picture

You know Russia and China are going to provide Iran with any support they can to make a war with Iran as difficult as possible. It's the US that is going to get a foot up it's ass. My grandfather used to say "we have been kicking the worlds ass for so long, it's about time they started kicking ours". I thought he was crazy. He wasn't

Thu, 09/27/2012 - 21:42 | 2837394 Muppet of the U...
Muppet of the Universe's picture

Remember when Libyas leader gaddafi told his people the U.S. was drugging a bnch of radical islamists and arming them with the latest combat techniques, training, and weapons?

Dude its happening in Syria in full force right now.  & the U.S. is just supplying arms, no troops yet. 

If Iran heads to Chinatown in the Big Apple (I have no idea what the means), you can damn well bet it will be done with the U.S. and Europe "supporting" (aka: drugging a bnch of radical islamists and arming them with the latest combat techniques, training, and weapons) Iranian Rebels...  Just like it did in Syria and Libya.  & China and Russia will respond with weapons and supplies to Iran.  The first to start losing this proxy war will have to actively start a military intervention (ie send troops or bombers.)  The first to have to deploy troops, will have an increased chance of losing the proxy war.  & at any time this economic/proxy war can erupt into full blown total war.  In which case, I heard South America is a nice place this time of year...

Thu, 09/27/2012 - 21:51 | 2837401 fonzannoon
fonzannoon's picture

I am not sure exactly where you are going with this (if Iran heads to chinatown in the big apple?) but I loosely agree with your thoughts. Especially about south america.

I think Jack handy summed up the currency plan (QE) well for the US....."Better not take a dog on the space shuttle, because if he sticks his head out when you're coming home his face might burn up."

Thu, 09/27/2012 - 22:54 | 2837499 strannick
strannick's picture



As the US ambassador said to De Gualle (or one of his lackeys) decades ago "the dollar is our currency, but your problem''. Only now we have Robert Rubin instead of Henry Kissinger.

The Chinese thought they could forever suppress their currency by buying Treasuries.

The Europeans thought they could have monetary union without fiscal union.

The Japs thought they could sell their bonds to their silly citizens forever.

They couldnt. Now when it all comes down, its still the US swinging the biggest stick.

To hear the Chinese whine about US money printing is to hear a chicken whine to the fox. Maybe the US will decide to discount foreign Treasury holdings by half in reply.

Well played Yankees.

Fri, 09/28/2012 - 00:49 | 2837714 Solarman
Solarman's picture

Absolutely correct.  It sucks being a mercantalist.  Wait until we close off imports like the Brits did during the Great Depression.  They were fine and recovered somewhat, we collapsed.  China today was America then.  Except, China can't feed their people or provide enough energy domestically like we could, and can

Fri, 09/28/2012 - 05:23 | 2837940 Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

which means china & russia will NUKE the 9th fleet and whatever else gets on their way to oil, buddy

Fri, 09/28/2012 - 01:59 | 2837778 Darth Sidious
Darth Sidious's picture



Have Yael at the international zionist conspiracy control center find out who this guy is and then have mossad take appropriate action. I'm tired of him exposing us.




You know who

Thu, 09/27/2012 - 22:01 | 2837430 yogibear
yogibear's picture

All China and Russia has to do is support Iran and the rest of the middle countries with weapons and technology to grind the US down. The US cannot afford another VietNam.

Russia and China both have the ability to make the drones ineffective.

Fri, 09/28/2012 - 08:30 | 2838133 neptunium
neptunium's picture

Drones are really just decoys or recon in early SEAD missions, they're not yet ready for combat prime time although Boeing and LM look set to change that. Drones are most useful when deployed against an enemy with second rate sensory capability - it is telling that Iran has only been able to claim one kill (that might plausibly have been a system malfunction).

I don't think any war with Iran would have or require boots on the ground, Libya is the model for any action over their territory, degrade their AA capability, enforce a no-fly zone and pick off armour and C4I as required. It doesn't need to turn into Vietnam at all, once you control the skies you delaminate the OPFOR, hit the power networks, soon you control their ability to communicate, under that situation, while many suggest the Iranian population would rally around their Leaders, they might also rebel against them, after all, they've been told Iran is all-powerful, were that to be proven demonstrably false there'd be hell to pay.

Hopefully diplomacy will win out, a war is the last thing anyone needs and the Iranian population deserves a lot better than a clerical powerbase, hopefully they'll remove the Ayatollah in due course.

Thu, 09/27/2012 - 21:39 | 2837386 vast-dom
vast-dom's picture

fuck yourself Muppet of the U... you POS hater.

Thu, 09/27/2012 - 21:43 | 2837398 Muppet of the U...
Muppet of the Universe's picture

I didn't start it.  The jews did.

Thu, 09/27/2012 - 21:49 | 2837404 vast-dom
vast-dom's picture

i can guarantee that you do not know what you are speaking of, nor do you know the start of what you reference. what you do know is hatred and bigotry and that was probably started at early age in your home and you never outgrew it. consider this a kind note in the hopes that you one day revisit your resentments. 

the WHITE man started most of it. Homo Sap worst animal out there.

Thu, 09/27/2012 - 22:33 | 2837423 Muppet of the U...
Muppet of the Universe's picture

I am not a mean person.  I simply say what I see, and what I see is ugly.  Your interpretation of what I see, is like your, perspective, maaaan.

So do I do not preach the hatred of another people.  Do I actively refer to anyone who is not of my race, in a derogatory way?  No. 

Do I refuse to interact with or breed with 'inferior peoples' (gentiles and goyim) who not of my own race?  No.

^ & as far as being into eugenics?  I find this one quite odd b/c jews aren't known for enlarged cerebral lololols.  :/  tough break.

Do I exist in life to control power centers, so that I might create global banks and corporations, and enslave the population? Nope.

& yet you still pretend that the mentality of our leaders is not of one particular pursuasion?  Let me ask you, if you commit a crime in wall street, and/or business, and you get off scott free, what religion to you belong to?

Fri, 09/28/2012 - 08:22 | 2838107 neptunium
neptunium's picture

You're incredibly pretentious and desperate for attention, from the rabid/breathless nature of your posts and the laughter (at your own statements ~LOLOL) etc I would guess you have problems interacting with people in day to day life, possibly autistic, possibly just lonely : (

No, scratch that, I'm sure you have loads of friends right?  ; ) 

Anyway, I'm sure that too is the fault of the Jews.

Personally in my business dealings with Jewish clients I've yet to have been stung, not once, ever. That's a generalisation that might equally explain (other than generally stable families and an emphasis on education) why Jews tend to do quite well, and obviously that attracts the ire of bigots, loners (you) and those who need to find a simplistic explanation for complex systems that elude the intellect.

Think about that when you're sitting alone pondering why you find it hard to meet people IRL ; ) 

Thu, 09/27/2012 - 23:31 | 2837588 FL_Conservative
FL_Conservative's picture

You think the Fed wouldn't ctrl-P to buy up the slack in the market?  China only owns $1.1TT.  Fucking Bernanke can ctrl-P that in about a week.

Fri, 09/28/2012 - 00:20 | 2837677 Muppet of the U...
Muppet of the Universe's picture

Think of it more as like, the shtf button, where everyone who already knows dollar = shit, is just waiting for a reason to dump it.

Moreover, Printing more money, will only increase the supply of dollars.  It will not do what the Fed would need, increase the demand for the dollar.  In fact the direct response to China dumping the dollar should be to reduce the monetary supply, b/c price is based on a supply versus demand scale.

Thu, 09/27/2012 - 23:38 | 2837594 pavman
pavman's picture


While I do like the thinking, in the end foreign dollar holdings are only a mere $4.5 - $5T, peanuts to the Bernanke.  This statement assumes transparency.

Thu, 09/27/2012 - 20:38 | 2837262 Ahmeexnal
Ahmeexnal's picture

They ain't gonna take it. They will dump the dollah before having their sand castles/malls/skyrises crumble before their very own eyes.
Things are unraveling faster than anyone expected.

Thu, 09/27/2012 - 20:38 | 2837263 fonzannoon
fonzannoon's picture

How about they break the peg to the dollar and float the remnimbi? Would it not soar against the dollar? Would that inflation tsunami come racing back to the US? I get that their exports to the US would drop substantially. So maybe they export to other countries and to their own growing middle class? What is so wrong with this train of thought?

Thu, 09/27/2012 - 21:00 | 2837300 Dr. Engali
Dr. Engali's picture

I always wondered if that's part of the Fed's strategy .... Export so much inflation to them and influct so much pain that it would force them to break the dollar peg.

Thu, 09/27/2012 - 21:06 | 2837315 Muppet of the U...
Muppet of the Universe's picture

& imagine the speculation behind a free floating currency that would likely end up being backed by trillions of dollars of gold.

Thu, 09/27/2012 - 21:01 | 2837302 the iD
the iD's picture

strengthening currency = debts harder to pay = insolvents go default.

Thu, 09/27/2012 - 21:07 | 2837317 fonzannoon
fonzannoon's picture

Exactly. China is the creditor. They get deflation. We are the debtor, we get to pay off our debts with funny money.

Thu, 09/27/2012 - 21:22 | 2837344 fnord88
fnord88's picture

China does not care about the money the US owes. They always knew they were never getting it back. It was the cost of building their manufacturing base, and their gold reserves. The end game has always been the death of the dollar. "Pay off our debts with funny money"..... don't make me laugh. When this plays out there will not be a US left. China does not care about the debt, only replacing the US dollar.

Thu, 09/27/2012 - 21:33 | 2837373 Dr. Engali
Dr. Engali's picture

Agreed. When this plays out the U.S is going to rip itself apart. It will be a Balkanized region like Europe.

Thu, 09/27/2012 - 21:40 | 2837389 fonzannoon
fonzannoon's picture

well dammit we should still pay it off with funny money. It's the right thing to do. If you don't have principles what do you have?

Thu, 09/27/2012 - 21:52 | 2837415 Dr. Engali
Dr. Engali's picture

"If you don't have principles what do you have?"

Fun in school :-> Seriously though this country through principles out the door a long time ago. After everything I've witnessed over the last few years I wonder if it ever had any.

Thu, 09/27/2012 - 21:59 | 2837427 fonzannoon
fonzannoon's picture

I hear you Doc. I know people on an individual level still have level still have principles. Some people anyway. It's what keeps me going. Too bad they are so freakin clueless to understand the principles this country was founded on, but still, people give me hope. What is amazing is I am a cyinic (you are 100% correct) and a total sap at the same time, because I believe that people will eventually accept reality and do what is right. I may be incredibly wrong but I am going to do my best to prepare for both.

That Jack Handy quote above nails it, no?

Thu, 09/27/2012 - 22:09 | 2837439 Dr. Engali
Dr. Engali's picture

I'm the same way. I know people whose integrity I would never question. They would give you the shirt off their back if you needed it. It makes me wonder how we continue to get these corrupt leaders elected. But then I see videos like the one I saw today with the voter who is voting for Ibama because he gave her a phone and I understand how. But even people like that I feel are descent people, but they are just misguided and taken advantage of instead if built up.
Like you I feel that when the shit gets deep people will finally get off their asses and do what needs to be done.

Fri, 09/28/2012 - 10:31 | 2838726 Jethro
Jethro's picture

I wish I shared your optimism Doc.  The lady in the video you referenced is a prime example of a multi-generational welfare state.  She neither possesses dignity, compassion nor ambition.  She cares only about what she's entitled to, and she is far from being an extremely vocal minority.  Indeed, she's fairly representative of most inner city inhabitants. Ordinarily, my initial instinct would be to show people like her compassion, but I'm weary and jaded of this behavior like her's,  and so my time and compassion would be wasted. They fail to see the connection that they have merely become pawns to be controlled by the government, because they rely entirely upon the government (food, shelter, clothing---and now, communication).  The surest way to destroy someone is to give them everything they need, or want.  I view welfare as little more than a reservation scheme without the sovereignty, or physical borders.  If the time ever comes where the government stops providing for these folks, there will be no boundary on their depravity to obtain what they think it "rightfully theirs".


Thu, 09/27/2012 - 22:07 | 2837437 yogibear
yogibear's picture

China is very, very patient, whereas the US is not. China can wait for the US to destroy it's currency.

China should announce clearly that it will unpegg from the US dollar. It should get other countries to go along with it as well.

It's the only way to put an end to Bernanke and his fellow money printers.

Fri, 09/28/2012 - 04:40 | 2837912 SoundMoney45
SoundMoney45's picture

It is not if, it is when China unpegs.  China has the strong hand, and time is on their side.  Bringing things to a head sooner is favorable to the US position.  

Thu, 09/27/2012 - 21:29 | 2837363 the iD
the iD's picture

i dont disagree, yet see the recent ZH article on china muni defaults. there is indebtedness w/i solvent entities as well. if they would be willing to let the insolvent fail and those chips fall where they may, then strengthening their currency while simultaneously turning their economy inwards w/ consumer based protectionist agenda would be the correct choice imo. let their burgeoning middle-class buy the products they produce, use the strong currency to buy up the remaining world natural resources at relatively cheap prices, increase military industrial expenditures because war is coming, raise the birth limit to 2 (one boy, one girl) and fill those ghost cities and absorb twice the debt. a stong currency promotes a strong populace. a strong populace promotes a strong government. oh, and best of all they would stick it to the us/west imperialist hegemony.

Fri, 09/28/2012 - 14:06 | 2839545 thefedisscam
thefedisscam's picture

70%+ of U.S. total debt are owned by the U.S. Fed. and U.S. companies//U.S. Pension/U.S. people, for God sake!

Whatever the consequency for the U.S. bankruptcy will be felt by BOTH U.S. and China and other big holders of the U.S. funny money!

Thu, 09/27/2012 - 21:11 | 2837324 Yen Cross
Yen Cross's picture

 Fonz, as early as last late spring( Northern Hemisphere), China was discussing 'offshore' clearing aka exchange' houses with Japan and Australia.

 China is incapable of "maintaining" the trading band range, with either partner. The band was meant to be a " Pan Pacific" exchange for the YUAN! 

 Japan exports & Australia exports, so it was a win /win idea for the PBoC. NO?

Thu, 09/27/2012 - 21:14 | 2837328 kito
kito's picture

spot on fonz.......china has hundreds and hundreds of millions yet to urbanize.....they dream of internal consumption demand....not too far off now.....

Thu, 09/27/2012 - 21:35 | 2837380 fonzannoon
fonzannoon's picture

Why don't they start by giving those foxconn workers a big ass raise? Watch these sheep over here have to pay $1,500 for an ipad, see how that works out for us?

Fri, 09/28/2012 - 00:53 | 2837717 DCFusor
DCFusor's picture

AAPL has insane gross profit on their ibling.  A big pay raise wouldn't make much difference, actually.

It might cut their margin back to only a couple times what everyone else gets.  iBling costs you 4-5 times what it costs them to make.

Fri, 09/28/2012 - 04:03 | 2837882 Yen Cross
Yen Cross's picture

Lot's of GHOST Cities to populate Kito? Keep Chasing yield! Been there done that!

Thu, 09/27/2012 - 20:40 | 2837265 Yen Cross
Yen Cross's picture


Thu, 09/27/2012 - 20:40 | 2837266 Bluntly Put
Bluntly Put's picture

"There is a conflict between the U.S. dollar's domestic role and its international settlement role."

^^ Understatement of the century.

Thu, 09/27/2012 - 21:23 | 2837347 fnord88
fnord88's picture

Triffins dilemma anybody?

Thu, 09/27/2012 - 21:48 | 2837402 RafterManFMJ
RafterManFMJ's picture

I think Kirk simply stopped feeding them, then they died.

Thu, 09/27/2012 - 20:44 | 2837274 buzzsaw99
buzzsaw99's picture

China and South Korea? South Korea? I guess I had no idea that the two were such great buddies. Silly me I thought it was China and North Korea that were so crazy, er, cozy. I hope they enjoy their new best-budship. Can we pull out of South Korea now?

Thu, 09/27/2012 - 20:50 | 2837288 Yen Cross
Yen Cross's picture

Lexus/Hyundai   "\ fuck no/.   bitchez

Thu, 09/27/2012 - 20:54 | 2837292 zippy_uk
zippy_uk's picture

So Benankes medicine is working - we were all just looking in the wrong country.

The plan is clear now - push up Chinese wages and currency or make the country implode via food riots.

Sort of a "I can print you country into economic destruction with my currency printing before I crash my countries economy" policy.

Nice work if you can get it.

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