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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Wyätt Gwyön who wrote (3652)	12/19/2003 2:27:05 PM
From: ild	Read Replies (1) \| Respond to of 110194

Not One, But Two Sources Of Chinese Malinvestment The U.S. economy was rife with malinvestment during the late 1990s because the Fed held the interest rate below its equilibrium level. Evidence of this was the explosion in the U.S. money supply at that time. When central banks prevent interest rates from rising to their natural or equilibrium levels, they encourage private investment decisions that will prove to be unprofitable once interest rates start to move toward their equilibrium values. Today, the People’s Bank of China (PBOC) is making the same policy mistake as did the Fed, as evidenced by the 20+% in the yuan M2 money supply. So, the PBOC is aiding and abetting Chinese malinvestment. But if that were not bad enough, the continued high degree of government central planning in the Chinese economy provides yet another source of malinvestment. When the PBOC finally has to clamp down on bank credit and money growth because of rising inflation – a whiff of which was present in November’s 3.0% yearover- year increase – the collapse of the Chinese economy will far eclipse the recent U.S. economic “soft patch.” But don’t worry about the PBOC clampdown now. It probably won’t happen until 2005. Paul Kasriel, Director of Economic Research (