Similarly, you can make the argument that the ECB is actually easy. Though it has not cut, its balance sheet is exploding since they are repo’ing all the junk from UBS and Spanish real estate. For a bank that talks about moral hazard, the dual pillar of money growth, etc, it sure is compromising that by inflating its balance sheet.

These aren’t views I wholly believe in, but one could certainly make that case. When people say the Fed is printing money or inflating away the USD, they are wrong, not perusing the Fed’s balance sheet data, and just using cliches from the typical anti-Fed/American consensus.

These people confuse and ignore cost of money with availability of money. When the Fed was tightening from 04-06, in a way they weren’t tightening because availability of money didn’t changed, if anything increased with the proliferation of Tangelo Mozilo’s Option ARMs, GMAC’s car loans, and the shadown banking system’s love affair with CDOs. Now, the cost of money has fallen, but the availability of credit is collapsing (bank credit, C+I, etc). Financial conditions are tightening dangerously and the Fed by lowering the rate is trying desperately to rectify that. The argument that a credit contraction is long overdue is fair, but when entrepreneurs can’t get loans to start a business, homeowners to buy the surfeit of inventory, etc then the economy will suffer. The salient point here is that the monetary base is barely growing, private credit availability collapsing, and Fed balance sheet not inflating. We’ll see where this ends, but as of now it doesn’t look pretty

Commercial bank credit (loans-deposits) is still on a sharp downward path.

It is a succulent irony that professional economists, (those who confuse the supply of money with the supply of loan-funds), thus conclude that increases in the old monetary figure “L”, (or M2, or M3), are inflationary.

The conclusion is tantamount to saying, “don’t save money” as savings (which we don’t have enough of), adds to “L” and therefore has an inflationary bias, when in fact, savings, (a large portion of “L”), is evidence of money that has already been saved/spent/invested. Non-bank savings-investment accounts have erroneously been lumped into the Keynesian inspired concept of money (as are MMF funds).

The “money stock” is unknown & unknowable.

Note: “L” measured M3 plus all other liquid assets such as Treasury bills, savings bonds, commercial paper, bankers’ acceptances and Eurodollar holdings of US residents (non-bank).

You are providing interesting and necessary information along with valuable perspective. I wish you still at RGE.

Thank you

Peter Schaeffer

P.S. I did pass math.

I think I agree that the government is captured and not only by MNCs. However, the employment explanation for bizarre economic policymaking, in connection with the nature of the regime (even this “communist” mob must be paternalistic, both of which I support intuitively (sorry) , makes me believe that jobs matter, in the sense that complaints from mates and managers are taken seriously and that riots have to be prevented at all cost, especially if you have trouble typing.

As to the employment share: that is a phenomenon very familiar to people familiar with Singapore. MNCs (including Taiwanese and HK firms) will not repatriate a lot if the money is making money and/or may have to be used for further investment. Low taxes and a firm outlook for the currency are then enough to drop as much revenue into the country as possible and keep it there. It is probably not the whole story but I would expect an Asian MNC friendly super exporter to have a declining employment share for quite a while. In a sense, a firm CNY boosts GDP that way. Not something that the domestic media would advertise though! Like in Spore, you direct the attention at GDP growth, not at the rather weak link between GDP and private consumption (in my book the best proxy for working class happiness) . It is pretty hard to present a rather sophisticated theory about China’s political economic dilemmas in this silly little window without being unclear or worse..

But as the now-in-vogue economist Hyman Minsky observed, stability breeds instability, and Hu Jintao’s harmonious society could end in debt deflation, zombie companies, mass unemployment, and potentially social upheaval the longer these excesses and misallocations persist. There is no way to tell when this well happen, and I give BS great credit in trying to analyze and decipher data that is clearly fudged and manipulated. But how can you analyze a complex and smoke and mirrors economy of a country that will substitute a 9 year old girl to sing at the Opening Ceremony of the Olympics because her appearance didn’t accord with her voice? I think China has so much potential, like the US 100 years ago; its people entrepreneurial, diligent, and economy once the largest in the world. But there is too much smoke and mirrors, and this has to expunged from the system. That’s what recessions do, that’s what credit crunches do, and that’s what needs to happen. The longer it doesn’t, as Xie has said for years, the worse it will be. Guys like DC remind me of the realtors 3 years ago who said house prices never go down….

I won’t rise for the bait again — some of rien’s points were quite interesting and there is certainly an interesting debate to be had about risk in china’s version of a shadow financial system that might be exposed should China experience a bit of slowdown.

Recall Ben Bernanke’s statement, “The Federal Reserve possesses the modern technology of the printing press. The Federal Reserve can stimulate the US Economy by dropping money from helicopters”.

By dropping the US discount rate to the current 2% that is well below the “real” rate of inflation, the Federal Reserve is pursuing a wildly, inflationary monetary policy. If the CPI statistics were measured objectively, US inflation tops 8%. Broad M-3 money supply under Bernanke is exploding at an annualized hyperinflationary 15% growth rate as per Shadowstats.com .
http://www.shadowstats.com/

Until the US adopts a “sound money” monetary policy, the Washington Consensus has no credibility left to criticize the China PBoC. Either adopt a “sound money” policy, or Bernanke should immediately resign.