"A policy mistake made by some major central bank may bring inflation risks to the whole world," said the People's Central Bank in its quarterly report. "As more and more economies are adopting unconventional monetary policies, such as quantitative easing (QE), major currencies' devaluation risks may rise," it said. The bank fears a "big consolidation" in the bond markets, clearly anxious that interest yields will surge as western states try to exit their QE experiment. Simon Derrick, currency chief at the Bank of New York Mellon, said the report is the latest sign that China is losing patience with the US and aims to diversify part its $1.95 trillion (£1.3 trillion) foreign reserves away from US Treasuries and other dollar securities. "There is a significant shift taking place in China. They are concerned about the stability of the global financial system so they are not going to sell US bonds they already have. But they are still accumulating $40bn of fresh reserves each month, and they are going to be much more careful where they invest it," he said. Hans Redeker, head of currencies at BNP Paribas, said China is switching into hard assets. "They want to buy production rights to raw materials and gain access to resources such as oil, water, and metals. They know they can't keep buying bonds," he said Premier Wen Jiabao left no doubt at the Communist Party summit in March that China is irked by Washington's response to the credit crunch, suspecting that the US is engaging in a stealth default on its debt by driving down the dollar. "We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets. To speak truthfully, I do indeed have some worries," he said. Days later, the central bank chief wrote a paper suggesting a world currency based on Special Drawing Rights issued by the International Monetary Fund. Some economists say China is suffering from "cognitive dissonance" by anguishing so much over its reserves, accumulated as a result of its own policy of holding down the yuan to promote exports. Quantitative easing by the US Federal Reserve and fellow central banks may have saved China as well, since the country's growth strategy is built on selling goods to the West. China's fears of imported inflation may reflect its concerns about over-heating. The M2 money supply rose 25pc in March on a year earlier, and there has been explosive credit growth since the government relaxed loan restraints. There are concerns that the stimulus is leaking into a new asset bubble rather than promoting job growth. The Shanghai bourse is up over 50pc since November.China fears bond crisis as it slams quantitative easing
China has given its clearest warning to date that emergency monetary stimulus by Western governments risks setting off worldwide inflation and undermining global bond markets.
Friday, 8 May 2009
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This isn't over until the Fat Lady sings. And she hasn't even got on stage yet.
1. You can't have American workers making $27.50/hr for doing the same job a Chinese worker will do for $2/day.
2. This only leaves very sophisticated medical..technical work for the US to do. But not everybody here is a brain surgeon. So lots of yahoos will be working for McSociety.
3. We will import everything everyone else can make cheaper. We will buy it on credit/deficit until the World stops lending to us.
4. Once the lending stops only the FED will be buying our long term debt.
5. Real (Q)uantitative (E)asing will cause the dollar to drop.
6. The dollar will drop until we can make, manufacture or otherwise supply to the world something of real value that will balance the deficits.
7. The G20 countries will have to reconvene a new Bretton Woods where fiat money is reattached to something real..gold, oil, uranium, wheat, coal.
8. Dollars must have real value...not just be backed by gov't edict.
6000 years of history tells you that Gold is the only real money, and bankers ( and the Chinese, Russians etc. ) know it. The current Fiat system is moving towards the end of the exponetial curve - as have many Fiat systems of the past.
Check out Wikipedia for the history of Fiat Money systems.
This one is no different.
The system is in it's fundemental nature flawed as Governments working with the CB System cartel get access to unlimited (debt-)money which is nothing more than a hidden tax on the voters. Thus politicians can "overspend" ( borrowing future tax-income ) ad infinitum.
Check out MISES dot ORG for more info.