China vs. the US: the gloves are off

The battle between currencies and countries is intensifying with news of the latest rate hike in China strategically announced just as Fed Chairman Bernanke is doing the speaking circuit trying to defend his plan for QE2 to the angered international community.
The People’s Bank of China yesterday ordered a 50 basis point increase in the amount of money that lenders must set aside, two days after the cabinet announced measures to tackle inflation. Stocks and oil fell on the central bank announcement, highlighting concern that Chinese efforts to cool the nation’s fastest rise in consumer prices in two years will cause growth to falter.
Speculative capital has flooded into emerging economies over the past 18 months intensifying since August with the US Fed's announcement of plans to add another $600 billion of “liquidity” to the global financial system. Excess liquidity has caused dramatic spikes in commodity prices around the globe over the past year and this is causing crippling inflation to the cost of basic necessities everywhere. In developing countries like China civil unrest looms where household incomes are too modest to absorb the increased living costs.
Two good interviews today explain the tensions now building over these issues between the key global players:
See: Gordon Chang, author and China analyst: on the US China outlook
and Analyst Keith McCullough on Bernanke, China
One thing seems very clear: China needs to slow inflation and stem the threat of its billowing asset bubbles. They will do this at the expense of growth. Those banking on China to backstop global growth over the next couple of years will just have to dial down their expectations.

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2 Responses to China vs. the US: the gloves are off

  1. Anonymous says:

    (WSJ) – “…the Journal of Commerce-Economic Cycle Research Institute industrial-prices index hit its 2010 high last Friday, just a hair under its record high from 2008.
    Both indexes track the prices of industrial metals such as copper and lead, as well as cotton, hides and tallow. The Economic Cycle Research Institute's index also tracks plywood and red oak among its 18 components. Since roughly half of the index's components aren't traded on exchanges, the economic-forecasting institute polls producers on prices daily via telephone and email, said Lakshman Achuthan, its co-founder and chief operations officer.
    With no agricultural or precious-metal components, the index isn't influenced by weather or speculation, he said, making it a more reliable near-term indicator of industrial growth. Tallow, for instance, is a key ingredient in industrial soap, so a surge in tallow use indicates companies are doing more cleaning.
    “Global industrial growth is going to revive around the end of this year or early next year,” Mr. Achuthan predicted…”

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