any other ideas re: China’s capacity to keep inflation contained?

Quoting from a draft of the WEO, the paper said the Washington-based fund argued “extraordinarily aggressively” for a correction in exchange rates, above all so as to reduce the massive U.S. current account deficit.

The dollar, which slid to a 2-year low against the euro last week, should continue to depreciate in the mid-term, while the yen, the Chinese yuan and currencies of oil-exporting countries in the Middle East should all appreciate, the draft WEO said.

The WEO, which is due to be published in mid-April, will add that there is no great need for further interest rate increases by the European Central Bank, according to the paper.

Thanks to solid growth in the 13-nation euro zone, the ECB would not create problems by raising its main lending rate to about 4.0 percent from 3.75 percent at present, the IMF said.

This seems an unrealistic representation of China’s growth. China ploughs a large share of output into new capital, because its people are so keen to save that they are willing to invest in even relatively poor projects. The result is that fast output growth goes with a poor marginal return on capital and low interest rates. This does not deter FDI though, because foreigners can bring skills and knowledge that enables them to get a better return on their capital than Chinese savers can. The resulting investment congestion can be messy, so the government tries to restrict investment at home and divert some abroad. As I suggested earlier this week though, I doubt that the authorities can raise interest rates by market operations alone.

Maybe this growth process is not strictly inter-temporally optimal, but the Chinese care about more than consumption. They want to reach the first world, and independence from foreign technology, as fast as possible. So they build their own planes and launch their own satellites, regardless of competitive advantage (Monday’s post).

The Indians seem more relaxed. Their population is still growing, so they feel less pressure to save for their old age, and I suspect that India’s development is less driven by national pride.

The story is not about mortgages but about the rapidly increasing inability for PEOPLE to PAY their mortgage.

The story is not about debating if it’s the banks fault for lending or the PEOPLES fault for borrowing. IT’S THE ECONOMY STUPED! Its not a partisan issue.

It is time for economists, economic annalists and financial industry advisors and prognosticators to stand up and say enough is enough.

No more analysis of the symptoms and effects. These efforts are not helping anyone. Enough of the innuendo, the inference, the open ended commentary meant to have us ask ourselves “is this right, is this OK?”

NO damn it it is not OK. It’s not moral, it’s not ethical, it’s not cleaver to profit from all of this as if money or gold or what ever you prefer and wherever you cleverly put it will help you if the vast majority of the population is hurting bad.

This is not your grandfathers’ financial crash. All indicators illustrate that a whole s#it load of factors are loaded and set to go at all at once. And the factors for recovery are declining rapidly (energy) or simply not there. It’s 10 times more dangerous than in the 1920’s. People are not going to roam around politely asking for a job or some bread.

There are no winners, no safe havens for the wealthy as many think. The strategy of quietly getting as much as you can before TSHTF is faulty. Where ya gona go huh? Think about it very carefully because there is no where that won’t be affected and do you really want to try and find that secure, gated location and live with a loaded gun at hand at all times, jumping at every sound?

Stand up now and tell it like it is. And tell the story of how we can restructure if we just acknowledge the truth, bring together the best minds and create a future, some kind of future that we AMERICANS can knuckle down and work for. It’s TIME we get down to some real work.

No you will not be ostracized for being “the one who starts the panic”, you will respected as one who had the courage to stand up.

No more business as usual. That option is over.

There has to be some similar subsidization process in China, or inflation figures must be much higher than reported. The boom in China is real, the growing inequality of incomes real, and while supply-side bottlenecks are not nearly as sever in China as in India, pain of inflation is being felt. It may be in China, like the US, that the economically visible part of the population and the prices it pays are stable, while the invisible rural segment has powerful inflation that is simply not counted. Or prices are subsidized. It’s either/or, isn’t it?

Is it possible that a “corporate veil” means that the distinction between corporate and household sector saving is artificial and does not mean much? If all households have shares and if incentives and decisions of firms are well-aligned with the interests of households, it may not matter much if saving is done by firms or households. Such a situation may describe the relationship between small firms and their owners, and there are concerns that this may affect the data on the composition of saving in India. However, this characterization does in general not describe China well. Shareholdership is not very widespread, and corporate governance of larger firms is such that firms’ decisions and interests are not often aligned with those of households, or in the case of SOEs, the state.

m2/ GDP is much, much bigger in china than india. And the indian banks have a lot of GOI bonds, while, setting the aMc recap bonds aside, china’s government hasn’t tapped the Chinese banks for financing to the banks don’t hold lots of GOC bonds. So in a sense the PBoC sterilization bills may substitute for GOI bonds on the balance sheets of the state banks in india, and they may — even now — represent a smaller share of chinese deposits than GOI bonds held by the indian banks. If i have the time, that is definately something worth examining.

Have you looked at the aggregate capital market size for China and India? My feeling is that China’s aggregate market for capital (banking + equity + bond) is much larger (approximately 200% of GDP) than India’s (approximately 125% of GDP). Given these ratios, the cost of sterilization incurred by PBoC is relatively small vs. RBI’s cost. This might also explain some of the inflationary mystery.
Also, I think the bank lending to deposit ratio will continue to fall in China as the equity and bond market continues to grow. Just looking at banking figures alone seems increasingly inadequate.

The lower household savings (as a % of GDP) may reflect in part high corporate savings in China (there is a huge gap with India), since the amount of corporate income (and savings) implies that household income is lower as a % of GDP. If labor income to GDP is low v GDP it is harder for household savings to be a high share of GDP, especially if most corp. profits are not disbursed.