2010-03-25

China headed for recession?

Is the Chinese economy running out of steam?
Therefore the appearance of excess capacity is signalling the emergence of malinvestments that must at some point be liquidated. Now these malinvestments are the creation of a reckless monetary policy which some are assuring us that Beijing is trying to reverse. When it comes to monetary policy — which includes monetary theory — Beijing is every bit as clueless as Washington and London. According to official PBC figures M1 jumped by 25 per cent from January 2009 to December 2009.

It's reported that in an effort to maintain economic growth and prevent "overheating" at the same time the government has curbed bank lending while also ordering the banks to increase their reserves. This is dangerous nonsense. Genuine economic growth cannot cause "overheating" which is another term for inflation. Those who argue otherwise are spouting rubbish. (One should have thought that some of these people would have noticed by now that this fallacy only appeared after Keynesian policies left us in a permanent state of inflation.)

If the present trend continues manufacturing will start to contract and the recession will then rapidly spread down China's production structure. Of course, the government can once again push down on the monetary accelerator. But in a sense this is where monetary and capital theory combine to produce an unstable and highly explosive mixture.
An interesting article to compare with Liu Junluo's latest, which calls for hyperinflation in China around 2012 or 2013.

No comments:

Post a Comment