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Posted January 25, 2022

Sean Ring

By Sean Ring

China Cuts Rates; Diverges From US Policy

  • Peoples Bank of China - their central bank - lowered their borrowing rate.
  • This move contrasts with the Feds hiking cycle.
  • Imported Chinese goods are about to get cheaper.

Happy Hump Day!

This week, Im teaching a program for the newly hired graduates at Singapores best bank.

Its reinvigorating, as the students are now half my age. The darn kids keep getting younger every year!

As theyre becoming operations and tech analysts for the bank, I take them through introductory modules on financial markets and products.

Teaching is a hoot because not only do I get to hear the sound of my voice all day - and as a Rude reader, you know how much I love that - but I also learn a great deal about what young people entering financial services are thinking.

Its informative, to say the least.

To wit, one of our daily exercises is to have a group of them give the morning chat.

This exercise simulates what bank trading floors do every day. A member of each desk summarizes the previous days activity and what theyre expecting today.

My kids just pick out one story that intrigues them and explains to the class what the event is, why it matters, and how it may impact their bank.

Most presentations are on US stocks and stories even out here in Asia.

But yesterday, our first group opened up with China.

I was thrilled as Id taken my eye off the China ball. Not only that, but it was a story on Chinas monetary policy and not a tech story.

It led to a 30-minute discussion of economics, which isnt a part of their course, but I hope it stimulated them to explore the subject further.

As for me, it gave me intellectual fodder for todays piece.

Briefly, and much to the chagrin of the Made in America brigade, imported Chinese goods are about to get cheaper.

Thats because the PBOC just lowered interest rates, which will further weaken the Chinese Renminbi.

While I sympathize with The Man, Im happy about the new competition between central banks.

I dont know about you, but the last thing I want to see is global monetary cooperation.

Thats just a technocratic way of saying, Were going to tax you via inflation, and we dont even need to pass a law to do it!

All taxation is theft, or more specifically, robbery.

But inflation is the most insidious tax of them all.

Its a tax levied not by a legislature - which is bad enough - but by the PhDs who run the central bank.

And not one in a hundred Americans understands it properly, which is why they dont know theyre getting hit with it until its too late.

So lets have a look at our Red Adversary to see what we may glean from their moves.

Its All About Us

Us, in this case, is China.

China cares about China. Not world peace or even absolute power.

Just China.

Ambassador is translated in Mandarin as tribute giver.

That implies all who are not Chinese are barbarians and should pay for their lack of privilege.

You cant qualify for Chinese citizenship if youre not ethnically Chinese. And if you cant fill out the citizenship form in Mandarin, its a non-starter anyway.

I wonder why the Left never complains about that. I mean, anyone can qualify for Western citizenship, right?

Now China has taken its monetary policy in a different direction as well.

The Peoples Bank of China - the PBOC, its central bank - has lowered borrowing rates for real estate buyers.

This move has come when Western central banks - especially the Fed - are thinking about hiking rates to fight inflation.

(Yes, this is the very same inflation these overeducated idiots created themselves.)

The PBOC is worried that China - which posted torrid growth of 8.1% last year - is mired in a property mess.

Evergrande is just one example of whats going on over there.

The embattled - and broke - real estate company urged bondholders to refrain from taking "radical legal actions. It said it looked forward to communicating with various overseas creditors to formulate a debt restructuring plan.

So China has taken a page out of The Ben Bernankes playbook and cut rates.

With the property sector's downturn seen persisting into 2022 and the fast-spreading Omicron variant dampening consumer activity, many analysts say those easing measures will be necessary.

Between us, these analysts dont have a good track record.

The Contrast

Bloomberg posted an informative article contrasting the situation between East and West.

Lets look at some of the best stuff:

The UKs consumer price index is soaring, pressuring the Bank of England to hike rates, not cut them.

Due to ECB money printing and their idiotic green policies, Ze Germans have seen energy prices roof it.

They shouldve followed Frances book, in this instance, and kept their nuclear plants.

The European Central Bank will almost certainly start to hike rates, along with the Bank of England and the Fed.

And dont leave out the Canadians, whose cheap money era has ended as well.

Theyll have a more challenging time dealing with higher rates, as their debt is the 6th highest in the world.

And look at these food prices. Theyve not only doubled over the last two decades; theyre enormously volatile.

At least a cheaper renminbi will ease prices somewhat. After all, the cost of ocean freight from China has also leaped.

This is no surprise, as Long Beach isnt the only congested port, it seems. Look at the Pearl River Delta, where Hong Kong and Shenzhen are.

Wrap Up

As you wouldve guessed, I think the new direction in Chinese monetary policy is disastrous.

Their money is already too plentiful, and printing more to lower rates will only add fuel to their inflationary fire.

But its their monetary funeral, so to speak.

As for The West, it shouldve raised rates a decade ago. And thats no exaggeration.

As soon as we were out of the woods of 2008, central banks ought to have reverted to normal.

But the Fed couldnt take its foot off the pedal. It never learns, but the hard way.

And that means were all going to learn along with them.

My Irish buddy Jerry just sent me a report from GMOs Jeremy Grantham, whos been shaking his head for quite some time over our muddleheaded monetary policy.

Ill read it today and report on it to you tomorrow.

Until then, have a great one!

All the best,

Sean

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