China, Hong Kong and Singapore Sliding—Japan Not So Much. Beckworth and the Fed Export Of Recession

A Benjamin Cole post

China in recent years has kept its slowly rising yuan more or less pegged to the U.S. dollar, while Hong Kong has been explicitly pegged to greenbacks, and Singapore pegged its dollar to a mix of trading currencies, including prominently the greenback.

There is problem with this pegging—the U. S. Federal Reserve has been running a tight money policy since tapering down its successful open-ended quantitative easing (QE) program last year.

Now we see China desperately trying to un-peg its yuan, but awkwardly (fearful of dollar-denominated debts), and the Hong Kong stock market as of August 21 is off 7.47% YOY. Singapore in Q2 reported deflation and recession.

David Beckworth, cartoonist and University of Western Kentucky scholar, has called the above process the export of U.S. monetary policy.


Of course, the relevant central banks—the People’s Bank of China, the Hong Kong Monetary Authority and the Monetary Authority of Singapore—should immediately move to expansionary pro-growth stances until their economies are open full-throttle.

With pegged exchange rates, the policymakers at the three central banks have essentially defaulted on their obligations, and let the Fed dictate monetary policy, leading to a regional weakling economy blue in the face for lack of money. BTW, recent history suggests the Far East does not do recession well.

Indeed, if sanity prevailed, Far East central bankers would hold a confab to make Donald Trump blush, and gaily declare they will gun the money presses until the plates melt.

After all, moderate inflation will be small price to pay to avoid recession, or for robust economic growth, of which the region is fully capable.


Japan, of course, is trying to recover from 20 years of deflationary tight money, starting 1992. The Bank of Japan is now pursuing a steady QE program, perhaps too timidly.

Nevertheless, despite last week’s reverses, the Japan Nikkei 225 is up 12.34% year-to-date and up 26.78% year-over-year. Tourism to Japan leapt nearly 50% YOY in H1, thanks to a yen that depreciated from 80 to 124 or so to the U.S. dollar. Japanese corporate profits have been very healthy. There is so much paper cash sloshing around the Japanese economy ($6000 per resident, dollar equivalent) that official GDP figures, or even employment stats, may be suspect. But certainly the relative success of Japan suggests that persistent QE is a valuable tool in promoting economic revival and growth, and other Far East central banks should quickly adopt the same.


As usual, I support NGDPLT, with the proviso that central banks shoot higher rather than lower, as in 7% or so. To my fellow Market Monetarists, I ask, “Why be so prissy about inflation?”

In 1992 Milton Friedman told the Fed to gun the presses when inflation was at 3%. Fed Chairman Paul Volcker ended his war on inflation in 1981 when the CPI dipped below 5%. Why the present-day fey squeamishness about inflation?

Modern economies appear to suffocate at inflation below 3%.  I suspect it has to do with robust growth creating bottlenecks that are addressed by higher prices; sticky wages; criminalized housing production; and other friction and structural impediments.

The good news is that inflation is not that important. Economies have flourished for decades with moderate inflation—see the United States 1982 to 2007.

I prefer prosperity and some inflation to stagnation in real growth and prices. I will never be a central banker.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.