Juggling Dynamite

Great piece in the Wall Street Journal today, on China's aging population, a trend exacerbated by the one-child policy. That means there will be a declining number of wage earners to support an increasing number of older people. See: Gray Matters in Booming China

“But China's demographic dividend is about to start fading, and that has implications for the country's economy. Along with moderating total-factor productivity, it is the main reason the World Bank expects China's annual growth rate to drop to 7.7% in 2015, and 6.7% by 2020. It was 8.7% in 2009. This could mean China soon loses its place as Asia's fastest-expanding large economy. Indeed, Morgan Stanley economists expect India's annual growth rate to surpass China's somewhere between 2013 and 2015. One reason: India's age-dependency ratio is heading in the opposite direction from China's, a trend that could last until 2040 at least.”

Not stats we hear the China Perma-bulls touch on much.

All the hype and hope surrounding Bennie and the Fed's comments at Jackson Hole Friday, underline how much mainstream commentators and stock bulls want to paint the Federal Reserve as a super-hero who can magically solve the economy. Far from it, in my view. The past decade the Fed has been more an antagonist than saviour. They have increasingly lost legitimate purpose in favour of helping us to propagate economic demise.
This new article from Christopher Whalen of Institutional Risk Analytics explores these issues: I am Superman: The Federal Reserve Board and the Neverending Crisis.
This article asserts that, in dealing with the 2007-2009 financial crises, the Federal Reserve Bank (Fed) has placed its role as monetary agency and de facto steward of the market for U.S. Treasury debt ahead of its statutory responsibility for ensuring the soundness of the private banks. This is not to say that the Fed supplies whatever credit the government wants — at least not yet — but in terms of both the provision of credit to the private financial system and the price of this credit, the growing fiscal imbalances of the U.S. government seem to be playing an increasing role in Fed policy decisions.

“Far from being an objective and fair prudential regulator, over the past several decades the Fed has shown a willingness to bend the rules or even launch into new, speculative areas of public policy, all in the name of appeasing the short-term political agenda of the Congress and the largest U.S. financial institutions. Maintaining access to cheap credit for the private sector as well as the stability of the largest banks, which include several of the most significant underwriters and dealers in government securities, may be seen as a means to larger ends, namely: (1) maintaining the appearance of positive levels of economic output and (2) preserving the ability of the Treasury to refinance existing debt and also issue debt.'

Worthwhile reading. Hat tip: Barry Ritholtz
And this follow up from Chris as well: Bernanke Fed Drives Deflation with zero-rate policy