Article

2011-02-12 Economy

China raises rates to battle stubbornly high inflation

Archived material is restricted to Rantburg regulars and members. If you need access email fred.pruitt=at=gmail.com with your nick to be added to the members list. There is no charge to join Rantburg as a member.

Posted by Steve White 2011-02-12 00:00|| || Front Page|| [11132 views ] Top

#1 Steve, the Chinese government has been expanding its money supply by whatever standardized measure you would use at a very fast pace over the last _decade_. This eventually _causes_ inflation. It's been causing inflation unevenly because of the way their economy is structured, with real estate bearing the brunt of the price increase (and in such a way that moves land use away from farming in the Eastern half of the country where historically most of the crops are grown).

That's probably the base reason for a lot of the increase in the price of foodstuffs: their economic policy has for a while been focused on turning farmland into factory-land. (Basically, the way the scam was set up, you couldn't own _land_ because that's antithetical to communism. But you could own buildings. Which means farmers don't have legal protections, but factory builders and housing developers have legal privileges. Oh, and the local governments get a lot of their income by letting people develop on it, i.e. turn farmland into factories).

Posted by Thing From Snowy Mountain 2011-02-12 00:14|| 2011-02-12 00:14|| Front Page Top

#2 IF you want to find out more you can look at this article at Zero Hedge; I only wish I could look at the chart at a higher resolution.

[LINK].

Posted by Thing From Snowy Mountain 2011-02-12 00:17|| 2011-02-12 00:17|| Front Page Top

#3 There are three aspects to being a successful banker and all three are important. One; borrow at 3%, lend at double, 6% and be on the golf course at 3P.M. All three are important. So how many bankers get to the golf course at 3P.M? could be where they are falling down.

Posted by tipper 2011-02-12 03:52|| 2011-02-12 03:52|| Front Page Top

#4 ...because at 3PM, they're on the phone to their campaign funded Congresscritter to bail them out for that 6 percent loan to people who couldn't pay back at 2 percent. While making nice to the Congresscritter in making those loans, they couldn't move fast enough to do as many as possible salivating for the expected return and hauling in various fees and charges in the process.

Posted by Procopius2k 2011-02-12 08:50|| 2011-02-12 08:50|| Front Page Top

#5 The government has long had an arrangement with the average Chinese people: let us rule, and we will ensure you are fed.

At some level that arrangement holds true for any government, anywhere, ever.

Posted by Glenmore 2011-02-12 09:46|| 2011-02-12 09:46|| Front Page Top

#6 Karl,

Paul Krugman wrote an interesting piece a while ago when he was more interested in economics and exchange rates than he was in writing sophomoric editorials.

Based on that article, and he's a crackerjack economist, China is cruising for a bruising because their monetary policy is out of whack. They have artificially suppressed the value of the yuan against the dollar to encourage their foreign trade. However, that means that the balance between their interest rates and inflation must be closely watched. If they can't control inflation, one of two things will happen, interest rates will go through the roof or foreign exchange traders (you hear me George Soros) will find the yuan in a Greek moment and all heck will break loose.
The danger to us is that if the Chinese dump their T-bills and they almost have to if they revalue the yuan, the yield on T-bills will fall and the Fed won't be able to auction any to speak of at the next run the presses event.

James,

I agree that Paul should stick to economics and I am just dying to see what he might say in one of his WSJ editorials...

Should be interesting reading.

I agree the Chinese have played mean games in foreign trade with their fixed exchange rate and a full blown economic collapse could happen over there with their house of cards economic policy...read Japan in the 70's.

Posted by James Carville/Karl Rove 2011-02-12 11:57|| 2011-02-12 11:57|| Front Page Top

#7 I think the drought has increased the price of grain leading to the inflation in food supply via supply and demand.

Posted by bman 2011-02-12 12:58|| 2011-02-12 12:58|| Front Page Top

#8 They have artificially suppressed the value of the yuan against the dollar to encourage their foreign trade.

There's nothing artificial about it. If anything, a floating exchangable yuan would be lower than it is now. Part of this is masked by the existance of two different yuans, one of which is exchangable with other currencies, and the other which is more or less restricted to the peasants.

They are very secretive about the operations of their banks, and that's where M2 is derived from M1. If you can't see what their banks are doing, you can't really tell that much about what's going on with their M2.

The main reason they're having inflation is because they've been increasing their money supply this whole decade. Everything else is more or less a slightly exacerbating circumstance.

Posted by Thing From Snowy Mountain 2011-02-12 13:34|| 2011-02-12 13:34|| Front Page Top

23:55 trailing wife
23:22 Dale
23:17 Anguper Hupomosing9418
23:11 Secret Asian Man
22:57 Dale
22:55 g(r)omgoru
22:48 g(r)omgoru
22:44 g(r)omgoru
22:43 g(r)omgoru
22:38 newc
22:15 Zhang Fei
22:06 Nimble Spemble
21:54 trailing wife
21:53 Procopius2k
21:45 trailing wife
21:19 crosspatch
21:08 crosspatch
21:00 crosspatch
20:12 tipper
20:08 Nimble Spemble
19:52 Nimble Spemble
19:49 Nimble Spemble
19:45 tipper
19:37 Zhang Fei