Monty Pelerin's World

Economics, Finance and Politics Through The Prism of Classical Liberalism

Archives for China

Another Dollar Warning

Another warning regarding the fate of the  US and its currency.

Possibly the Last Time to Get Out of the Dollar

by Simon Black

March 15, 2011
Dallas, Texas, USA

It’s no secret that the United States government owes a pretty penny to foreigners. Certainly, what America owes to foreigners pales in comparison to what it owes to Ben Bernanke… but still, $4.45 trillion is no small number, even in these crazy times when terms like “kajillion bajillion” are more appropriate to quantify debt and entitlements.

China is the largest foreign buyer of US Treasuries with around $1.15 trillion in holdings… Japan is the second largest at around $886 billion. Curiously, the trend for China has been down– the Middle Kingdom has been steadily reducing its position since peaking in October 2010.

Japan, on the other hand, has been

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Will China Be Like Egypt?

From afar the Chinese economic miracle is impressive. Large statist efforts produce large impressive outcomes. Massive new cities appear where none were before. Rapid GDP growth rates are regularly announced. China is about to become the world’s great superpower — economically, intellectually and militarily.

But wait! There’s more! China has some of the same problems that caused the unrest in Tunisia and Egypt. Will they be able to overcome these?

See Why Egypt Should Worry China for a discussion of the risks in China.


China Channels Ben Bernanke

China and inflation have not co-existed well over the centuries.

China is attempting to do the impossible, walk a tightrope between free markets and strong central control. Ultimately the two don’t play well together. In the end, they are incompatible.  In the meantime, however,  the drama of an enormous population with expectations of rising standards of living and a centrally planned economy try to co-exist.  The resolution of this conflict could be quick (very dangerous) or play out over decades (presumably a better outcome).

Compounding the task is currently rising inflation. From Coffeetoday comes this quote from Chinese Prime Minister Wen Jiabao:

“I think with our efforts we can keep prices at reasonable levels. As leader of the Government, I have the responsibility and I have confidence (for it),” Wen said.  The People’s Bank of China (PBOC, Central) announced yesterday an increase of a quarter point interests rate, the second of its kind issued by China in just two months.  ”We raised the bank reserve ratio on six consecutive occasions and increased interest rates in two to absorb excess liquidity in the market to maintain a reasonable level to support economic development,” said the premier.

In November inflation reached 5.1 percent, the highest figure in 28 months. The Prime Minister, in his best Ben Bernanke imitation, insists that inflation can be managed:

“I think with our efforts we can keep prices at reasonable levels. As leader of the Government, I have the responsibility and I have confidence (for it),” Wen said.  The People’s Bank of China (PBOC, Central) announced yesterday an increase of a quarter point interests rate, the second of its kind issued by China in just two months.  ”We raised the bank reserve ratio on six consecutive occasions and increased interest rates in two to absorb excess liquidity in the market to maintain a reasonable level to support economic development,” said the premier.

Real estate prices are suspected to be in a bubble in some of the major cities where price rises have exceeded double digits for months.

In an attempt to bring China into the 21st Century, the Chinese government is betting that they can stimulate and then put on the brakes when inflation appears.

I believe they are wrong. If so, there could be serious implications within and outside of China.

How Hyperinflation Occurs

Hyperinflation does not occur slowly. Nor is it preceded by a bell ringing or an article warning you in advance. Hyperinflation is like a tsunami. By the time you spot it, it is too late. You are already doomed.

All of the actions taken by our government in an attempt to ward off the necessary corrections in the economy enhance the probabilities of hyperinflation. These actions cannot work in terms of healing the underlying economic problems, but they surely can make things worse, even to the point of destroying the country.

The following film should be watched by all. The most unreasonable aspect of the film is probably the date because no one can possibly predict with accuracy precise timing.

What you are about to watch need not happen. It is not yet “written” although it is getting close to being so. Our next chapter is dependent upon the actions and decisions made by our government and Federal Reserve. Continued attempts to “remedy” the problem are likely. These enhance the probability of hyperinflation.

Bernanke on Abolishing the Fed

It appears that Ben Bernanke is achieving what Ron Paul and others before him could not do. That is, Mr. Bernanke may be the one to actually destroy the Federal Reserve. If Mr. Bernanke accomplishes this goal, we should all be thankful. He is deserving of a statue in the Free Market Hall of Fame, assuming there are any buildings left standing.

The scary part is that Mr. Bernanke’s goal is to strengthen rather than abolish the Fed. That he may succeed in accomplishing that which he is most against should be terrifying to the country and the world. Like the man who re-appointed him, Mr. Bernanke seems to be living in his own world, oblivious to what is happening around him. He is being assailed from all quarters, yet does not see, hear or comprehend the criticism. Soon, he will be the only one that does not know he has failed and failed miserably.

Mr. Bernanke is not your average person. He, like so many academics, is educated beyond his level of competence. He has been contaminated by what Hayek termed “the fatal conceit.” His pedigree and superior intellect surely enable him to solve any problem. Mr. Bernanke is truly extraordinary, but only in his supreme confidence and detachment from reality.

According to Mish:

Bernanke is a man who could not find his ass with both hands and a roadmap when it comes to spotting the housing bubble, the recession, and levels of unemployment, yet he preaches to the world as if he has all the answers.

He is so hellbent on preventing deflation that he cannot see anything else. It would help if he even understood what it was. It sure would help if he could understand that rising prices without rising wages will crucify the average citizen.

It is not enough that he holds the power (and apparently the ability) to destroy this country, now he insists on sharing his unique abilities with the rest of the world. Apparently destroying the US is considered too trivial a task for this genius. He is must save (destroy) the financial system of the world.

His latest speech is an attack on China. Wow! If you owed a million dollars to a bank who had the right to call the funds at their discretion, would you run around saying bad things about them? Of course not. But then you haven’t been educated beyond your level of competence.

Read Mish‘s blistering take on Bernanke’s latest moves.

China and Treasuries

A clever but depressing ad:

The learned teacher might better be concerned with whether all that paper is worth anything.

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