How Obama Wish the China’s Economy Is at His Backyard



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Oct 13 2010
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While Federal Reserve is set to introduce QE-II (quantitative easing) because its near-to-zero interest rate could not wake up the crawling economy powerhouse, China has the opposite problem – economy overheating. How President Obama wishes he could have the best of both worlds; the China’s boiling economy and America’s presidency.

China, the world’s second biggest economy was haunted by worry about its overheating economy for some times. Dow Jones dropped more than 50-point after Beijing told its top six state-owned biggest banks to increase reserves by 0.5% points to 17.5% of their deposits in a move seen to control lending. Housing prices and inflation skyrocket thanks to the forever economy growth, such as the latest 10.3% growth in the second quarter.

The 0.5% points hike is roughly 200 billion yuan (US$29 billion) in otherwise lending money. China’s “big four” lenders affected by the latest ruling are Industrial & Commercial Bank of China Ltd., Bank of China Ltd., China Construction Bank Ltd. and Agricultural Bank of China Ltd. In total banks will be allowed to lend a total of 7.5 trillion yuan ($1.1 trillion) this year, down from a record 9.6 trillion yuan ($1.4 trillion) in 2009.

USA China

So far it seems China does not have much problem managing its own economy while America is clueless on fixing it. When China introduced the stimulus programme all the banks obediently lend out their money and now they are told to control their lending nobody would dare to disobey. On the other hand America banks stopped lending despite the government’s bailout of their mismanaged toxic assets.

 

While everybody is waiting for QE2 there’s a possibility such optimism may not materialize after a senior Fed official commented that the bank is aware about creating future monetary problems. Sure, the government can continue to purchase the Treasuries now that the interest rate is already near zero since Dec 2008.

With the current climate, a purchase of $500 billion in Treasuries would equate to cutting short-term rates by 50 to 75 basis points but the actual effect could be less than 10 to 25 basis points, at least Kansas City Federal Reserve President Thomas Hoenigv believes so. And considering such action could trigger inflation of 4% to 5%, it would be wise to think it over again.

America also hopes China could help to ease its (America) pain by applying political and diplomatic pressure in order for the Chinese to seriously look into its currency policy. But China couldn’t care less about America or the world. In fact the Chinese hopes the current global economy slowdown (which does not affect China in a huge wave) would prolong because the country is still in the process of shopping spree across the globe.

And if China doesn’t want to devalue its currency, there’s nothing anybody can do about it. China is ready to take on the world in the “Currency War”   

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Comments

In 2013, Hu/Wen would retire from China’s scene. Employ them as advisers in US. Soon, US would be flying again and everybody would be rushing to US.
Remember, President Hu has the highest IQ amongst the current world leaders.
Only question is, “Would they come?”

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[…] How Obama Wish the China’s Economy Is at His Backyard […]

[…] How Obama Wish the China’s Economy Is at His Backyard […]

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