China: Loose US Policy, Weak USD Creating Speculation

[UpInArms]

Source: Wall Street Journal

BEIJING -(Dow Jones)- China's chief banking regulator on Sunday sharply criticized loose U.S. monetary policy, including the weak U.S. dollar, saying the situation is creating massive speculation in global asset markets.

The U.S. Federal Reserve's promise to keep U.S. interest rates at extraordinarily low levels for an extended period "has already led to a massive U.S. dollar carry trade and massive speculation," Liu Mingkang said at the International Finance Forum in Beijing, which began just hours before U.S. President Barack Obama was scheduled to land in China on his first ever visit.

Even as key trading partners like the U.S. and the EU and multilateral agencies like the World Bank and International Monetary Fund recommend more yuan appreciation, China - as the world's biggest holder of U.S. Treasurys - continues to push back, defending its own exchange rate policy, while warning about unsustainable U.S. economic policies.

Liu said that the weak U.S. dollar and low U.S. interest rates are creating "unavoidable risks for the recovery of the global economy, especially emerging economies" and that the situation is "seriously impacting global asset prices and encouraging speculation in stock and property markets."

The focus on the greenback has come after it sunk to a 15-month low last week. In a speech late Tuesday, Federal Reserve Bank of Dallas President Richard Fisher said he is aware that the Fed's current stance of keeping interest rates low for an "extended period" was denting the dollar.

Fischer's comments mark the first mention from the Fed on the so-called carry trade, which takes advantage of cheap dollar borrowing costs tied to the central bank's current zero-percent interest rate stance.

Read more: http://online.wsj.com/article/BT-CO-20091115-701966.html

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I truly wish that Obama would cleanse his economic advisory department of all of the know-nothings and get GS away from our Treasury

[Dreamer Tatum]

1. And China sandbagging their currency props up their exports nt

[Deja Q]

2. When they play by the rules, then they have a right to quibble.

Right now they still manipulate and push out products no other country would want to have tied to their namesake.

[David__77]

4. They're playing by the same rules that made the US rich.

Currency controls were standard until Nixon destroyed the system.

[amandabeech]

3. They are more than welcome to unhook their currency from the U.S. dollar.

Then they wouldn't be nearly as affected by the Fed or the Treasury.

They made the choice to do the hook up. We didn't hold a missile to their heads.

[Lucky Luciano]

6. Strengthening the Yuan is not in their best interest - of course for exports...but

China holds $800B in treasuries - that will be worth less to them if the Yuan strengthens - so they can be very much affected by the Fed and/or Treasury.

[amandabeech]

9. That is true. But their imports from other countries will be cheaper.

Oil being first among them, but also basic metals and coal.

Agricultural imports from the U.S. will also be cheaper.

I figure that they will cut back on treasury purchases at some point. I read here on DU, either here or in the stock market watch thread, that the Chinese are interested in short-term rather than long-term securities. My guess is that they believe interest rates will go up, and they'd rather be in the position to buy long-term high interest bonds. But what do I know--I'm a former history major.

[madrchsod]

5. i love how the fascists embrace red china.

over 40 yrs communist china was the reason millions were maimed and killed in south east asia. 50 thousand plus americans died so we can import goods from communist vietnam and china?

china whines and cries because they know it`s a dance of death.

[Blue_Tires]

7. likewise, i also love how

those same fascists go back to Jesse Helms mode whenever the Cuba embargo is mentioned...

[upi402]

10. Exactly why the chickens who vote for Colonel Sanders piss me off so badly!

Money elites don't care about patriotism, corporations have no national loyalty. They use those concepts to get people to act against their own best interest all the time. And it just fries me to get looked upon as less than patriotic by Republican peons to question these evil doers out loud.

[Statistical]

8. Funny China is complaining about weak dollar policy.

The Yuan is substantially devalued by the Chinese govt by a 50-100% which reduces prices of Chinese exports.

It is held artificially low by Chinese central bank via bogus fixed exchange rates.

The entire world has been pressing China to float their currency rather than have it fixed to the dollar.
China technically allows the Yuan to float but applies massive fiscal pressure to ensure if floats in a very narrow range around Y7:$1.

Based on PPP the Yuan should be worth something in the Y2:$1 to Y3:$1 range. Allowing the Yuan to truly float would increase net worth and income of Chinese citizens by 100%-150% but would also raise export prices by a similar amount.

China has benefited from an artificially weak Yuan (even when they didn't need it that weak) for last 2 decades and now in a financial crisis is demanding US strengthen the dollar?