The dollar carry debate just got serious. Because when the biggest blower of liquidity-driven asset bubbles, promoter of casino markets, distributor of made up economic results, goal-seeked GDP data, erector of ghost towns and various other imaginary economic artifacts (i.e., China) accuses you (or in this case Ben Bernanke) of creating a “huge dollar carry trade” which is posing a “threat to the global economic recovery” you know we are past the pleasantries stage. Whether the accusation coming out of China’s chief banking regulator is a preemptive bargaining chip to prevent discussion of renminbi appreciation (as discussed yesterday) or an objective realization that the global asset bubble inflation is occurring purely on the backs of whatever is left of US savers, which can only continue so long, the bottom line is that China is taking a direct stab at the extremely myopic American strategy to print at least one dollar for each dollar on the asset side of banks’ balance sheets. One thing is for sure: when the soon-to-be-biggest world economy sees right through the only trick left in the Fed’s hat, the time to unwind the carry trade is approaching.
The US Federal Reserve is fuelling “speculative investments” and endangering global recovery through loose monetary policy, a senior Chinese official warned on Sunday just hours before President Barack Obama arrived in China for his first visit.
Liu Mingkang, China’s chief banking regulator, said that the combination of a weak dollar and low interest rates had encouraged a “huge carry trade” that was having a “massive impact on global asset prices”.
And yes, China can return the favor of monetary criticism, especially when the Kettle (and especially its central bank) is the entity that taught not only the Pot but every other kitchen appliance in the fiat monetary system how to get out of each and every patch of sour economic conditions: print, print, print.
Mr Liu’s unusually blunt remarks underscore how China – the largest US creditor because of its massive holdings of Treasury bonds – has become a trenchant critic of monetary and fiscal policy in the US.
Yet as pointed out earlier, this is merely a lot of mutual blame which will likely end up nowhere fast, at least not before the imbalances in the monetary system become all too strong and scuttle the entire money printing structure.
However, Mr Liu’s criticism of the Fed comes as China’s own monetary policy is attracting growing scrutiny at home. Critics say the massive expansion in bank loans this year could cause asset price bubbles and inflation.
The biggest winner out of all this (as we have claimed from day one): companies that make weapons-grade amounts of ink cartridges for currency printers.
