A Benjamin Cole post
It is one of the oddities of our time that Communist China has a central bank that is more growth-oriented than that of the bastion of free enterprise, the United States.
The Federal Reserve’s FOMC should pack their bags and fly to Beijing to see what real central banker looks like, that being Zhou Xiaochuan, top man at the People’s Bank of China (PBoC).
Zhou, 67, just issued a warning “about signs of deflation and said he was closely watching slowing of global economic growth and declines in commodity prices, while speaking at forum on the island of Hainan.”
BTW, we Market Monetarists often beat up on media-folk for their inept reporting. But I agree with this bit of in-story editorializing from Reuters, “Beijing is determined to keep the Chinese economy…from taking the same path of recession and deflation that has blighted its neighbor Japan for the past 20 years.” Maybe even wire-reporters are better central bankers than the present FOMC.)
The Stats: China vs. U.S.A.
Now consider this: inflation in China is not much different from that of the United States, coming at 1.4% in February. The U.S CPI for last 12 months is 0.0%, but to bend over backwards to be fair, it is 1.7% core.
China’s GDP is growing by about 7%, and the U.S posted 2.2% in Q4 2014, and may be slowing.
So which central bank (if either) should be thinking about stimulus and fighting deflation? Is something backwards?
The PBoC vs. The Fed
But it is the PBoC that has cut interest rates twice recently, and lowered bank reserve requirements, while the Fed endlessly pines for the day it can raise rates, and rhapsodizes euphoric at suggestions it sell off its balance sheet.
The PBoC sees inflation under 2% and moves to stimulus. The Fed sees inflation under 2% and moves to..,tighten?
Economists, at least of certain stripes, love to blame structural impediments for slow growth in Western democracies, and in the United States. But that does not explain the 20% real growth of U.S GDP from 1976 to 1979, when the U.S. had an expansionist central bank.
And are we to believe that centrally planned, hopelessly corrupt, state-controlled communist China does not have structural impediments? How does China grow at 7% annually?
It is unknown if China can prosper in years ahead. Due to barbaric government civil-rights policies and communist party control of everything, the rich and smart want to leave China. That is a very serious structural impediment.
But I suspect the United States cannot prosper with ongoing Federal Reserve policies. The States are headed down the Japan road. The blighted one.
The future belongs to China? Maybe. If so, the central banks played lead roles in the tale of two nations.