The discount rate cut doesn’t actually do anything for the economy- growth or inflation- but does show their concern.

And the relatively low Q1 state lending is showing the actual continuing policy constraint.

As previously discussed, China has what they consider an inflation problem, and there are precious few, if any, examples of inflation fights that didn’t cause hard landings.

Ch Headlines:

China to lower reserve requirement ratio
Q1 GDP slows in 29 provinces, regions
China 2012 Growth Forecast Cut to 8.1%, Citigroup Says
China 2012 Growth Outlook Revised to 8% From 8.2%, JPMorgan Says
China Growth Seen at 13-Year Low by Pimco as Banks Cut Forecast

26 Responses

      1. @WARREN MOSLER, So the distribution of locally-experienced inflation can grossly skew the policy response to net inflation – given the vagaries of lobbying channels?

        Check. The rest is routine. Majority of attempts to fix a mis-diagnosed ailment have, by simple statistics, nearly an unavoidably high chance of exacerbating the symptoms. Runaway self-reinforcement until the diagnosis improves.

        Any ideology when that diagnosis might improve? πŸ™‚
        (rhetorical question)

      2. @roger erickson, Electorates need to demand that all policy staff take a hypocrites oath: “When you don’t know what’s going on, don’t make things worse with random tinkering!”

        (just to make it look like you’re doing something; that defeats the whole, well thought out & defined reasoning which defines “policy”)

    1. @roger erickson,
      I live in Beijng and can tell you that things which matter to ordinary people are increasing in price noticeably- food being the big one. You’ve also seen gas, rents and salaries jump significantly over the past year or two, but that may just be my expat bias looking at higher end apartments and salaries for locals so I can’t say for sure. Food is certainly way up and a constant conversation piece among the middle and lower classes.

      Housing prices have been incomprehensible to everybody for a long time so it’s hard to say anything definitive about that.

      1. @KD, KD, what are the social safety nets like for those that can’t afford food or housing in that region? How much do the churches and volunteer organizations do versus the government?

      2. @Save America,
        I talked with a Chinese guy about that very topic. He said that the Chinese concept of a social safety net was that whole families that “didn’t compete” could be found a few miles further out in the provinces each year.

      3. @Save America, China has a two tiered system: one for locals of a region and another one for immigrants from other regions in China. For the latter group there are some minimal forms of assistance, but for the latter (who make up the majority of the poor) there is next to nothing at all. Also church and volunteer organizations are heavily discriminated against because they are seen as a threat to the communist party. As a result their influence is next to nonexistent.

        Simply put: it’s every family for itself here.

  1. This might help

    “Saudi Arabia, the world’s biggest crude exporter, pumped 10.1 million barrels a day in April, about 200,000 barrels more than the previous month and the highest level in more than three decades, a report by the Organization of Petroleum Exporting Countries showed May 10, citing official data submitted by the kingdom.
    β€œWe want a lower price than where it is now,” al-Naimi said yesterday. β€œWe need to get the price to a level of around $100” a barrel for Brent, he said.”

    1. @Winslow R., Who on earth is convincing the Saudi’s to lower the price of the product they sell? Sounds like collusion, no matter how you look at it.

  2. Warren,

    In the last few years they had had a very dangerous housing bubble and they managed to contain it without triggering a crash similar to one which happened in Japan in the 1990s or recently in the US.

    Inflation was just a symptom. Currency is a state monopoly but money is not. Banks can also endogenously create money and that process leads to creation of extra spending power – if deposits are spent not on purchasing existing assets but on buying new products (e.g. investment goods or newly built houses).

    In the next stage they will stimulate the economy but it remains to be seen what method will be used.

    1. banks are designated agents of the state, in fact more closely controlled by the state in China, where they call them state banks, as they don’t even have any private capital.

      yes, banks create ‘spending power’ which increases demand, as previously discussed for the last 20 years on this and my prior websites and papers.

      and the jury is still out on whether china has avoided a ‘crash’

      1. @WARREN MOSLER,

        Listed firms offer bleak outlook
        Updated: 2012-05-15 09:19
        By Huang Ying (China Daily)
        Earnings expected to decline or fall into the red in first-half financial forecasts

        Almost half of the companies listed on the mainland’s two bourses that have so far released financial forecasts for the first six months expect to see a decline in earnings or to fall into the red, primarily due to falling demand amid an economic slowdown.

        According to Wind Information Co Ltd, a leading provider of economic data and financial information, 845 companies listed on the Shenzhen and Shanghai stock exchanges had released January-June financial performance forecasts as of May 13.

        A total of 384 companies forecast a slump in their net profit or a loss, accounting for 45.4 percent.

        BOE Technology Group Co Ltd ranked first among those forecasting a loss, with the company expecting to fall into the red to the tune of 800 million yuan ($126.8 million) to 900 million yuan.

        In addition, Beijing Shougang Co Ltd, Guodian Changyuan Electric Power Co Ltd and Northeast Pharmaceutical Group Co Ltd are also expected to suffer losses in excess of 100 million yuan.

        Property developers and manufacturing companies account for the majority of poorly performing companies.

      2. @Save America, “But a fall in the growth rate may not necessarily be a bad thing,” said Ding Li, a researcher with the Guangdong Academy of Social Sciences.

        LOL! BWAHAHA! Up is down, freedom is slavery! Only in bizarro world is less growth good eh?

        Continuously weak demand from developed economies has already led some experts to forecast that China may miss its 2012 foreign trade growth target.

        But a slowdown may not be an entirely bad thing, they said, because it could spur more companies to undergo technological upgrading and come up with better products and services.

        Anbound, a Beijing-based consultancy, said it is highly unlikely that China’s foreign trade can grow by the 10 percent that was anticipated earlier this year.

        This comment was made prior to the publication of China’s April trade data on Thursday, which saw exports grow 4.9 percent year-on-year, reaching $163.25 billion, while imports grew just 0.3 percent, to $144.83 billion.

  3. It occurs to me that day to day monetary transactions are bound to be fewer in a highly socialized community where everyone knows everyone else, such as we find in the traditional South (excluding Florida and increasingly Texas). So, how is a comparison with states whose populations are transient and fluid worth anything at all.
    If Georgia is at all characteristic, then the so-called “red” states are more like their erstwhile antagonists, the eastern European socialist states, than is generally recognized. Indeed, what was and is being resisted is the totalitarianism of the secular (Godless) nation, rather than the social welfare net they take for granted.
    Jimmy Carter riding out of Georgia and Bill Clinton emerging from Arkansas were not socialist aberrations. Rather they were the product of a socialist society that doesn’t recognize itself as such.
    The reason the red states collect more dollars from Washington than they “contribute” and still remain “poor” (the war on poverty has not been won), is because when communal services are abundant, there’s no need for money to change hands with every transaction.
    For example, Georgia has 159 counties and each county has a health department with clinics to deliver preventive services. So, of course, Georgia can turn up its nose at Washington’s effort to set new standards of care. And in this case, “smaller” government does mean “more” local and diverse and less direct cost. Governments can realize efficiencies of scale, which disappear when the organism becomes a monopoly. Too big fails. Perhaps self-centeredness is the cause.

    1. @Monica Smith,

      Most people do not like to be governed from afar by people who don’t share their cultural values or understand their daily lives. In fact, that’s why there was something called the American Revolution that started 237 years ago.

      There are many reasons why southern states and less densely populated states are “red,” but one of the reasons has to do with where the elite educational institutions are from which the Washington DC elite are drawn.

      Red state residents are skeptical of the central power in DC because the elites in power are not “like” them.

      Ironically, I am skeptical of the central power in DC because those elites in power are actually “like” me.

      1. @ESM, My friends at Georgia Tech think their contributions to society have been much more useful and beneficial than anything out of the elite law schools or DC. My friends in cocoa beach working for NASA feel the same, we got TANG from those guys, what drink did DC give us besides maybe some new variety of martini?

      2. @Save America,


        “My friends in cocoa beach working for NASA feel the same…”

        Given that NASA is a government agency, I think the politicians and bureaucrats would try to take credit for Tang. Kind of like Al Gore taking credit for the internet. They think that writing laws that have an impact (positive or negative or neutral or immaterial) on a project somehow entitles them to take credit for that project (if and only if it is successful of course).

        Passing and implementing laws, regardless of soundness or efficacy, is their way of padding their resumes. It’s kind of like when you worked at the drive-in window at McDonalds but wrote on you resume that you worked at the intersetion of transportation and nutrition management.

    2. @Monica Smith,

      yes, in a more self-sustaining and socializing societies the need for monetary transactions are much less. Even Christian charities reduce monetary transactions.
      Money only become indispensable once the ability for self-sustenance is removed, and even more so – after social relationships are weakened and societies become individualized.

  4. Warren why should I bank with you at enterprise, or let you or your funds do a 2/20 deal with my assets, when soon I can probably get these chinese boyz to probably do it better and cheaper and kick you and your USA white boyz financial club to the curb? You always said our financial sector needs to shrink, I didn’t realize you meant to shrink by US banks to be replaced by chinese ones! China bout to do some Jet Li financial chop chop on you…

    Federal Reserve approves plans that will open up new businesses

    The US Federal Reserve Board on Wednesday announced that it had approved a move that would allow three major Chinese State-owned banks to extend their footprint in the country, viewed as a major breakthrough after last week’s bilateral strategic and economic dialogue.

    The Fed approved an application filed a year earlier by Industrial and Commercial Bank of China Ltd, the world’s largest lender by market value and the most profitable, to purchase up to 80 percent of the Bank of East Asia Ltd’s US unit.

    It is the first time that a Chinese bank has been allowed to buy a majority stake in a local depository institution, which signals a substantial opening of the US banking market to Chinese lenders, said analysts.

    1. @Save America, I just talked this over with one of my asian bar-girlfriends, she said this is exciting, now when I go to my local wal-mart shopping center (with all its made in china stuff) that I drive to in my car with mostly made in china parts, and go to the chinese take-out for general tso’s, now I can go to the chinese bank (probably right next to the wal-mart) and get chinese financing to buy a new made in china car and made in china goods at the wal-mart while my chinese financial advisor helps me plan for my extended retirement. All I really need the USA for is the physical land, but now with those new chinese trade zones and property development happening all over the USA maybe not.

      I told her Warren was right, what suckers we have made of the Chinese, they now do EVERYTHING for us, banking, goods, services, everything! I just sit back and coast on thier backs, what fools they are and what winners all round eyes are!

      I said the last thing to topple is to get rid of all these american women and thier expectations and bring in the chinese tiger moms who will make good children out of our youth.

      Exporting american women may be the ONE time exports are not a cost warren πŸ˜‰ LOL! And importing chinese ones definitely 2x the benefit!

      I hope your wife or girlfriend (or boyfriend – george takei like) speaks mandarin Warren, no need to stack the deck against yourself in this new globalized age getting only an english speaking mate. πŸ˜‰

      1. @Save America,

        I also had a long chat with my Chinese friend after work yesterday.

        I am sorry you miss the point – the Chinese are NOT after destroying America and they do not want to be another “undisputed super-heavyweight champion of the world”. This would be stupid. They simply want to look after their own interests what includes removing the legacy of 200 years of colonialism. The fundamental cultural difference between China and the West is that there is no desire to impose their own cultural supremacy – either secular (“true democracy” based on consumerism – “one dollar/one vote” system) or religious. They will never establish Maoist, Confucian or Buddhist churches in the US. You may choose to eat a burger instead of a dim sum. Obviously they are perfectly capable of playing hardball like everyone else in the game.

        The Americans feel threatened because they want to maintain a kind of totalitarian grip on everything in the world in the name of “globalisation” and “spread of democracy”. American and multinational corporations want to skim profits from every business activity in the world. The super-parasite “squid” sucking blood from everything everywhere and poisoning the world with private debt is the Wall Street complex.

        Guess what the Chinese did… they gave the America what Uncle Sam wanted but with a twist. Do you think that people in China do not understand that they are giving away real goods in exchange for virtual numbers in the American banking system?

        You cannot have free lunches (mostly for the 1%) and full domestic capacity utilisation leading to massive investment in the productive economy at the same time. The Chinese are after maximising investment in their own economic infrastructure. What you see in the US is the side effect of that process as the Chinese sap aggregate demand from the West. The American political and economic leaders do not want to change the current global financial system based on dollar hegemony – that’s why they reject Functional Finance. They have failed however to realise that the system was hacked long time ago by the code-breakers from PLA and the new password is “MICHAL_KALECKI”.

      2. @Adam (ak), “Do you think that people in China do not understand that they are giving away real goods in exchange for virtual numbers in the American banking system?”

        Wether they realize it or not, I think warren has said the chinese government is possibly facing a hard landing and mass social unrest and will do everything they can to remain in power and keep idle masses busy. (after chinese idleness, and the european idleness, seems like a whole lot of idle people to me, idle hands are good eh?)

        I said I date asian women and encourage warren and all the rest of you to get one yourself, how is that being threatened, I am advocating union and love not division and fear! LOL! I say to export american women and import asian ones, I like thier attitude better and they cook great pork fried rice! πŸ™‚

        Obama’s personal economic advisor Dr. Malveaux admitted the asians are the future and former spook financial guy warren salinger said the asians will carry the torch into the future too. I really don’t understand all this anti-american animosity from so many people here directed at SAVE AMERICA who thinks USA wants to rule them all, so many have so much hate in thier heart directed at americans who are trying to do good for the world. Look at warren, he is a product of american society, look at the FREE hours he puts in trying to save asia, europe, the USA, everyone! Go to blogs all over the internet of people trying to expose the corruption of the financial elite all over. Can you point me to the chinese ones attacking thier own government corruption and others?

        One of the 10 greatest heroes of chinese history (as voted by them) was a guy named eugene achem chen. He only spoke english and was temporary acting emporer of china during all that communist drama in the 20’s. Long before coming here I had many internet chats with his financier grandson, probably one of the largest goldbugs on the planet. Mr. Pink would often join in on our chats, that is third points dan loeb, the surfer guy, before he was exposed.

        Chen’s grandson was adamant that currencies worldwide would collapse, 2017 or so was his timeframe, east and west, and any commoner not holding gold would become poor after the global reset. I told that guy human nature is universal, east or west, and female wants and needs even more so, and as those asian women started wanting nice hairdo’s and nail jobs and fancy clothes and cars and elite schools for the kiddies, that all that “asian” buddhist stuff would go out the window. When china does contracts for oil that was secured by US or other military forces, I don’t see them saying NO – we cannot accept this oil, it was obtained by force and manipulation. LOL! ( I watched that star trek episode with the evil captain kirk taking crystals by force BTW)

        I hear the philippines and cambodia and others are having trouble with china when it comes to energy resources lately, what was that you say about not trying to IMPOSE themselves! πŸ˜‰ Hard to make chinese soccer mom and tiger moms car go with no energy eh? πŸ™‚

        I think the much bigger issue, east west, 200 years colonial rule or 2000 years of chinese society, 8 billion human beings and growing, most wanting purpose, and many wanting life freedom and happiness and at least as much as the other human beings, wether you are round eye or not.

        I dont know who the code breakers from the PLA are, but I think going forward, people are going to be far more worried about thier small circle of family and friends than the guy across the street, chinese, european, american, doesn’t matter. The world grows, the borg unite, then the system implodes and the borg divide, been going on for thousands of years.

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