During the recent APEC meeting in Singapore, Liu Mingkang, China's chief banking regulator, took a cheap shot at the US and Obama when he remarked that the US Federal Reserve is fueling speculative investments and endangering global recovery through loose monetary policy. Why I think that was a cheap shot - even my blog has been saying that for the longest time. The policies Liu was refering to were the weak USD, massive liquidity and currency printing, and low interest rates by the US. Liu basically said some standard knowledge: "The US Fed is boosting speculative investments in stock and property markets and will pose new, real and insurmountable risks to the global economy."
Mr. Liu, what do you expect the Fed or Obama to do??? Raise interest rates in the US while property prices, corporate spending and empoyment are still pretty weak??? To criticise the US is so easy. Hallo... you want to talk about bubbles, just look at China's massive expansion in dubious loans over the last 10 months - now that's a bubble as well.
Everybody do not want the financial crisis to happen but it has. How you work together to revive the global economy is more important, rather than criticising one another's policies. Every government is most concerned about saving jobs as it could derail the broader economy for a long time if left unchecked. The underlying rationale is to prevent social unrest, which could spell the end of many governments during times of crisis. Everybody has their own turf to mend first, only then can they work together to bring the global economy out of the woods.
How can the US seriously have a firm or strong USD now??? It needs to be more competitive, it needs to adjust its purchasing power in light of the massive amount of USD being printed, it needs to attract investments into its businesses and assets by having a lower USD - is that wrong? How in the hell is Obama going to justify having a firm USD in current times - yea, make it more attractive for US companies to ship jobs abroad, make US products a lot more expensive. Come on Mr. Liu, think before you speak, or rather stand in the other person's shoes before speaking. What about the massive China's stimulus program, isn't that easy money as well?
As to whether the US monetary and fiscal policies will lead to another global asset bubble, that will take some guess work. As things go, yes, we are headed for one, but we have yet to see how the major central bankers act further down the road. If they behave responsibly and keep selling bonds (buying back liquidity or soaking up liquidity) at a gradual pace, the asset bubble scenario may be averted. The flip side of it is when they do soak up liquidity, you will see asset prices correcting - I guess the strategy is to do it gently and in step with market mood swings. Mr. Liu, you think only you understand that the USD carry trade result in speculation???..., I am sure all central bankers know that, even the central bankers of Mali know that - just work together with other central bankers and stop spewing unnecessary jibes to win brownie points. You can criticise, but offer solutions lah, let's see how and what you would propose to do if your were in Bernanke's shoes.
You can criticise the USD carry trade (borrowing in USD and speculating in foreign currencies, stocks and other assets) but that is beyond the scope of the Fed or Obama. Plus market movements or capital flows may not be long term, it may be shifting trends, you cannot simply manipulate short term monetary or fiscal policy for the sake of controlling what might reall be short term market trends. There will come a time when markets will think the USD has gone too low and the USD carry trade will unwind by itself. Do not jump around like a mad dog over normal course of events when currencies are realigning. Makes me think you not fit enough to be China's banking regulator.
p/s photos: Han Hyo Joo
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