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.

What can a monetary superpower do?

Harm to itself and a lot of damage to others:

The U.S. economy is plodding along amid turbulence around the globe, a sign of its relative strength despite mounting questions about its long-term vitality.

In recent months, Europe skidded toward a Greece-induced disaster, China’s growth worries whacked its stock market and global oil prices resumed their plunge. But the world’s largest economy has, so far, regained some traction coming out of a winter slowdown.

BNY Mellon Suggests A Brighter Future—And Why Not? Because of the Fed and Anti-Business Cranks?

A Benjamin Cole post

Of the many lamentable aspects of modern macroeconomics is the cowardly defeatism, that only slow growth is possible, and if not that, then advisable.

So welcome is a recent white paper issued by banker BNY Mellon, which ponders a future in which the U.S., China, Japan, and India (the “G4”) come close to fulfilling economic growth potential—and not through heroics, but just by rising to past growth trends.

The return to mediocre G4 growth would add $10 trillion to their projected GDPs by 2020, and another $8 trillion in related growth outside those four nations.

One key paragraph in the BNY Mellon report catches the eye:

Under Shinzo Abe, Japan now has its most stable government in almost a decade and a central bank that has twice surprised the markets with its determination to defeat deflation.”


I have agonized in this space a few times how long the “right-wing” or business class would abjectly genuflect to gold and tight money. This self-destructive monetary peevishness must certainly appeal only to ideologues, theoretical academics, pundits and traders who have shorted markets—and to no one in the real business world.

I have found in interviews with economists in institutional real estate circles that the worship of tight money is absent. And now banker BNY Mellon says that the Bank of Japan’s aggressive QE program is a good thing. How long until the tight-money fanatics are seen for what they are: anti-business cranks.

The Fed Is The Monkey Wrench?

So, we read that the People’s Bank of China has been practicing a type of QE all along and is now lowering rates and considering more QE, and of course the Bank of Japan is in the QE camp. After foot-dragging and destroying the economies of a few nations, the ECB is in QE too.

That leaves the Fed, which has quit QE and blindly painted itself into a corner by endlessly rhapsodizing about raising rates. So now a Fed return to QE would look like a “flip-flop” or institutional ineptitude or uncertainty.

Would you like another $18 trillion in global GDP?

Tell the ECB, the PBoC and the BoJ to pour it on, to go to QE hard and heavy, print way more money.

But mostly tell the Fed.

China Has A Better Central Bank Than The United States Sino-Superpower To Surpass States Sooner?

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?

The Upshot

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.