China’s economy slowed its inflation rate to a two-year low. The Chinese consumer prices rose 1.9 percent from a year earlier while the producer-price index dropped 3.6 percent. While this number shows that China’s economy is slowing dramatically, it also increases the odds that the Chinese will soon pump up the economy with a lot of cash. If they don’t then money will then flow into China as QE 3d is in full force.
The more things change, the more they stay the same. Ben Bernanke took heat on QE3D, but we have been there before. It was two years ago I wrote, “Ben Versus the Dragon.” I wrote, “The Chinese moved to increase interest rates and Big Ben Bernanke struck back defending quantitative easing and bashing the Chinese. Ben forced the issue with QE2 and now the Chinese are forced to raise rates! Now the question is will the Chinese rate hikes keep coming or will it be too little too late to cool their hot inflation? Right now I would say it is bordering on too little too late. Ben Bernanke lashed out at China saying they are causing global problems by preventing their currency from strengthening while their economy booms.
“The Fed felt it had no choice (but to print more money,QE2) as the U.S. government moved slow to attack a rising budget deficit and at the same time face an imbalance as the Chinese continue to manipulate their currency.” Chinese currency manipulation may help them in the short run, yet it could sow the seeds of economic problems in the future.
The Chinese may feel that they have to cheat the world to be successful by controlling their currency but the truth is that if they want to maintain their meteoric economic growth over the long run they would be better served by allowing the market, not the government, to moderate their economy. Chinese currency manipulation is creating a bubble that will burst if they make a misstep, causing major pain the future. Right now that may be hard to imagine as everyone on the globe is so bullish on China yet the recent correction and history is a reminder that things can change.
Chinese currency manipulation was just as much a factor in the global economic meltdown as was the Fed and the U.S. government's ill-fated Fannie and Freddie excesses. China's siphoning of jobs and wealth from other parts of the globe at a rate that was unfettered by moderation by a rising currency helped create imbalances. The huge influx of capital and by default artificially cheap goods, helped create and add to deflationary pressures in the U. S as well as other parts of the globe. That's not to say, of course, that cheap goods are not good because they are and they provide good things for the economy yet at the same time cheap goods on the back of a major budding economic superpower currency manipulation does not allow for an orderly fall in price which exports deflate. China's overprotective currency ways have exported deflation to other parts of the globe. The Fed has forced the Chinese hand. If they fail to allow their currency to float, then Mr. Bernanke will continue to print money and export inflation to China. The Chinese will have to raise rates which in a normal free market world would mean their currency can strengthen. I guess there is more than one way to get the Chinese to move to address the economic pain they are exporting to their partners.
This week we should see a rebound in gasoline stocks after a slew of refining issues eased up and the gas cracks rocked. Look for crude to fall by 2 million barrels. Look for gasoline to rise by 3.5 million barrels and distillate stocks up by 2.5 million barrels.
The Energy Information Administration may say your heating bill will be higher this winter.