China

Well, they threaten to sell our crap, we punish them for pegging to the world's most manipulated currency. Quid pro quo Clarice.

Today, almost 1,000 years after paper money first appeared and 350 years after China banned its use, China’s is again issuing excessive amounts of paper money; and, once again, paper money’s initial prosperity is about to give way to inflation and economic chaos in the celestial kingdom. Southern Weekly, a Chinese language publication, recently noted: China has not only been the country that prints money at the fastest rate but also been the country with the largest money supply in the world in the past decade. China’s M2, a broad measure of money supply, was up 19.46% at the end of November from a year earlier...This compares with 3.3% and 2.5% of annual M2 growth in the US and Japan respectively over the same period…China's money supply, M2-to-GDP ratio over the past decade is the highest in the world. The nation with the longest history of excessive money printing and consequent inflation has clearly forgotten its past. The past, however, has not forgotten China.

Something curious was noted this morning on CNBC Europe: namely a reference to an article in the Shanghai Financial News, according to which China is quietly (or not so quietly) trying to orchestrate a 30% drop in real estate prices, in the form of a "Thunder attack" which combines increased purchase costs, property taxes as well as the rise in interest rates. If proven true, this is a major flashing red sign of just how out of control inflation, especially property and real estate, is in China, and that future CPI readings (not the official Politburo number, but that which people actually have to live with) will be getting progressively worse. Also, for the government to step in with such a drastic measure, it must mean that the discontent on the ground must be approaching a fever pitch.

With a hike discounted and real yields still in very negative territory, I expected a fade of any initially bearish reaction, which is what the market provided today.

The way I view it, China has compressed 100 years of economic growth into 30 or 40 years, so naturally the annual growth rate has been fast. One thing that history has taught us, though, is that the free market cannot be continually outperformed by a central planning authority that inflates its money supply. Rapid credit expansions can definitely give the appearance of strong economic growth, but no credit expansion has ever lasted permanently. In the long run, an economy can only continue to move forward at strong growth rates via increases in savings, productivity, technology, and innovation. The truth is, nobody knows what China's real growth rate is. I remember spending time in the country's gray markets-- huge roadside, makeshift shopping malls with tens of thousands of people engaging in off-the-books transactions-- thinking to myself 'no way GDP numbers account for this...'

The attempts to fight Bernanke's inflation resume in Asia, where not even fully recovered from recent New Year celebration partying, the PBoC decided to hike rates for the second time in over a month. The reason: January inflation could be as high as 6% which means trouble for the various members of politburo. Benchmark one-year deposit rates will be lifted by 25 basis points to 3 percent, while one-year lending rates will also be raised by 25 basis points to 6.06 percent, the People's Bank of China said. The rises take effect from February 9. For the time being markets are orderly, even though the announcement did send the EURUSD to the highs of the day.

Our administration in a nutshell: in the just released "Semiannual Report on International Economic and Exchange Rate Policies" by the Treasury, the conclusion is that while China isn't really a currency manipulator, which it obviously is via the CNYUSD peg, inasmuch as the US also is courtesy of the Hewlett Vissarionovich, "progress thus far is insufficient and that more rapid progress is needed." Win win for everyone, as the global FX attrition war continues (we lob inflation at them, they lob it back ten fold). In the meantime, the status quo is great and let's all pray that the global revolutions end with Egypt, which a month ago few even could point out on a map.

The firm which exposed RINO for the fraud it is has released its latest Chinese scam target: China MediaExpress Holdings (Nasdaq:CCME)."Muddy Waters LLC has initiated coverage on China MediaExpress Holdings, Inc. (CCME) with a Strong Sell rating and an estimated value of $5.28."

And so the tide rising all commodities keeps coming: rough rice has just passed its December 2009 high and is now at its highest since October 2008. When we predicted on Monday morning that "rice is next", little did we think that it would be up by 11% in 4 days. And with this important resistance level broken, it is smooth sailing to the next two resistance levels of $20 and $24. Of course, Bangladesh will be in flames long before any of those are hit. But a speculator has to eat, right. After all, none of this is Gen Ben's fault.

"The Lonliest Man in Davos" wrote a 28-page report foretelling a global recession by 2015 via a commodity debt crisis brought on by China.

And so the long anticipated incursion by the PBOC, whose holdings of gold are behind even those of GLD, begins. Bloomberg has just reported, that "China central bank adviser Xia Bin said the country should increase its gold and silver reserves, the Economic Information Daily reported today, citing an interview with Xia." But how can this be: after all China has trillions in USD-denominated reserves, and any indication that it believes these are based on a currency that may actually be impaired will be an act of Mutual Assured Destruction. Well, yes and no. China is merely taking the next defection step in what is already failed Nash equilibrium. The first? The Fed's gross monetization of all US debt. The observant ones will realize that Chinese holdings in November were lower than they were in June of 2009! Who has picked up the slack? Why the Federal Reserve of course. Simply said, the Fed is explicitly making China's creditor status increasingly less relevant. Zero Hedge has long been wondering how much longer China will take this direct defection in what previously had been a stable equilibrium balance in which China provides the US vendor financing, while the US imports China's crap. As the Criminal Reserve is increasingly taking away the leverage that China used to enjoy as Creditor numero uno, it is only a matter of time before China fires back. And it may have just done that.

Several days ago we highlighted that wage inflation in China spreading after Shanghai announced it would hike minimum salaries by 10%. Today, through Global Times we learn that this is just the beginning. Or the continuation rather: it seems that 30 provinces had already hiked minimum wages in 2010: "By the end of 2010, 30 provincial-level regions had raised the standard for the minimum wage, with an average increase of 22.8 percent year-on-year., Yin Chengji, spokesman for the Ministry of Human Resources and Social Security (MHRSS), said Tuesday. According to him, 29 provinces have issued the guideline for the minimum wages, and the benchmark line grew about 2 percent. In Shanghai, the local minimum wage was the highest nationwide, totaling 1,120 yuan ($170.2) per month." And 2011 will be even worse: " Also, according to a China Business News (CBN) report Tuesday, in 2011, many areas would continue to raise the standard. A Xinhua News Agency report Wednesday revealed that northern Chinese city of Tianjin is considering raising the minimum working wage by 16 percent this year amid rising inflationary pressure and labor shortages." We are confident America's workers will be delighted to know that Bernanke's massively destructive monetary policies are finally resulting in higher salaries... In China. But wait: this also means US consumer purchasing power is about collapse as since very soon all imported Made in China trinkets are about to get far more expensive as already razor thin margined China producers scramble to raise costs to their primary export market.

First, Wal Mart's primary gimmick for masking inflation was confined to using smaller packages sold at the same price. Now, it has devolved to outright fraud and misrepresentation. Top global discount stores Wal-Mart and Carrefour have both been fined in China for "misleading pricing at some of their stores in the nation, as the government works to rein in rising prices for consumer goods." Presumably outright lies (and being caught) are the last bastion before even such ultra low price point retailers are finally forced to hike their prices. Bloomberg explains further: "Authorities in cities including Shanghai, Chongqing, and Kunming discovered incidents at local Wal-Mart and Carrefour outlets that included labeling on products with prices that didn’t match what shoppers were charged at payment, exaggeration of discounts and labeling that led to confusion about how much a product cost. The stores may be fined five times the revenue they earned using such methods, the National Development and Reform Commission said today on its website." Our only advice on this news: get a channel checker for rice prices in China...

A look back at China 2010 econ measures and indices, plus some of my observations.

Numbers may be rigged or "smoothed out", but can't fool the regular Chinese Joe's and smart money. I believe if China stays on its current "prudent course", the real consumer inflation could hit double digit by early next year.