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China Warns Federal Reserve Over 'printing Money'

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http://www.telegraph.co.uk/finance/finance...ting-money.html

Richard Fisher, president of the Dallas Federal Reserve Bank, said: "Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature."

"I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States," he told the Wall Street Journal.

His recent trip to the Far East appears to have been a stark reminder that Asia's "Confucian" culture of right action does not look kindly on the insouciant policy of printing money by Anglo-Saxons.

Mr Fisher, the Fed's leading hawk, was a fierce opponent of the original decision to buy Treasury debt, fearing that it would lead to a blurring of the line between fiscal and monetary policy – and could all too easily degenerate into Argentine-style financing of uncontrolled spending.

However, he agreed that the Fed was forced to take emergency action after the financial system "literally fell apart".

Nor, he added was there much risk of inflation taking off yet. The Dallas Fed uses a "trim mean" method based on 180 prices that excludes extreme moves and is widely admired for accuracy.

"You've got some mild deflation here," he said.

The Oxford-educated Mr Fisher, an outspoken free-marketer and believer in the Schumpeterian process of "creative destruction", has been running a fervent campaign to alert Americans to the "very big hole" in unfunded pension and health-care liabilities built up by a careless political class over the years.

"We at the Dallas Fed believe the total is over $99 trillion," he said in February.

"This situation is of your own creation. When you berate your representatives or senators or presidents for the mess we are in, you are really berating yourself. You elect them," he said.

His warning comes amid growing fears that America could lose its AAA sovereign rating.

$99tr is that a misprint???? Should it be bn?

The US has been monetising it's debt for years, have the Chinese really only just realised what the US is doing? The Fed have bee printing for years the outcome may have already been decided and there is nothing China can do.

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http://www.telegraph.co.uk/finance/finance...resistance.html

The interest yield on 10-year US Treasuries – the benchmark price of long-term credit for the global system – jumped 33 basis points last week to 3.45pc week on contagion effects after Standard & Poor's issued a warning on Britain's "AAA" credit rating.

The yield has risen over 90 basis points since March when the US Federal Reserve first announced its controversial plan to buy Treasury bonds directly, a move designed to force down the borrowing costs and help stabilise the housing market.

The yield-spike may be nearing the point where it threatens to short-circuit economic recovery. While lower spreads on mortgage rates have kept a lid on home loan costs so far, mortgage rates have nevertheless crept back up to 5pc.

The Obama administration needs to raise $2 trillion this year to cover the fiscal stimulus plan and the bank bail-outs. It has to fund $900bn by September.

"The dynamic is just getting overwhelming," said RBC Capital Markets.

The US Treasury is selling $40bn of two-year notes on Tuesday, $35bn of five-year bonds on Wednesday, and $25bn of seven-year debt on Thursday. While the US has not yet suffered the indignity of a failed auction – unlike Britain and Germany – traders are watching closely to see what share is being purchased by US government itself in pure "monetisation" of the deficit.

Don Kohn, the Fed's vice-chair, said over the weekend that Fed actions would add $1 trillion of stimulus to the US economy over time and had already prevented "fire sales" of assets.

"The preliminary evidence suggest that our programme has worked," he said.

The US is not alone in facing a deficit crisis. Governments worldwide have to raise some $6 trillion in debt this year, with huge demands in Japan and Europe. Kyle Bass from the US fund Hayman Advisors said the markets were choking on debt.

"There isn't enough capital in the world to buy the new sovereign issuance required to finance the giant fiscal deficits that countries are so intent on running. There is simply not enough money out there," he said. "If the US loses control of long rates, they will not be able to arrest asset price declines. If they print too much money, they will debase the dollar and cause stagflation.

"The bottom line is that there is no global 'get out of jail free' card for anyone", he said.

The US is acutely vulnerable because it relies heavily on foreign goodwill. China and Japan alone hold 23pc of America's $6,369bn federal debt. Suspicions that Washington is trying to engineer a stealth default by letting the dollar slide could cause patience to snap, even if Asian exporters would themselves suffer if they harmed their chief market.

So there isn't enough money out there to fund all this spending so we just print the money into existence. What a fantastic plan.

It appears that the end game is looming and there clearly is no plan, widespread defaults appear to be looming.

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http://www.telegraph.co.uk/finance/finance...ting-money.html

$99tr is that a misprint???? Should it be bn?

The US has been monetising it's debt for years, have the Chinese really only just realised what the US is doing? The Fed have bee printing for years the outcome may have already been decided and there is nothing China can do.

No, the Chinese have been playing the long game. Develop their own economy and bring down the US one. They have little more to gain from continuing the polices of recent past - they now have a sure footing in most of the industries and technologies that they need and a global supply chain to push them through. They can now stick the knife in, protect what is left of their ":investment" in the US and divert that value and future earnings into securing solid access to raw materials and continue apace in investing in their own people and companies which will eventually displace all the outsourced/offshored companies in foreign hands.

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No, the Chinese have been playing the long game. Develop their own economy and bring down the US one. They have little more to gain from continuing the polices of recent past - they now have a sure footing in most of the industries and technologies that they need and a global supply chain to push them through. They can now stick the knife in, protect what is left of their ":investment" in the US and divert that value and future earnings into securing solid access to raw materials and continue apace in investing in their own people and companies which will eventually displace all the outsourced/offshored companies in foreign hands.

One slight flaw in your plan.

The Chinese population, it's completely unsustainable.

If they have played the long game they haven't done it too well.

Shrink the population and you get a huge retirement time bomb, don't tackle it and you run out of resources.

China long term is screwed.

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http://www.telegraph.co.uk/finance/finance...ting-money.html

$99tr is that a misprint???? Should it be bn?

The US has been monetising it's debt for years, have the Chinese really only just realised what the US is doing? The Fed have bee printing for years the outcome may have already been decided and there is nothing China can do.

The figure is correct.

he first gave that number out in a speech for the dallas fed, IIRC.

I think I started a thread on it......

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One slight flaw in your plan.

The Chinese population, it's completely unsustainable.

If they have played the long game they haven't done it too well.

Shrink the population and you get a huge retirement time bomb, don't tackle it and you run out of resources.

China long term is screwed.

I think they have a plan, better than having none. Yes there is a retirement time bomb, yes they have actively limited their population growth which has in part created this situation but the alternative would have been (probably) a worse situation.

So, what do they do. Go balls out to improve their economy, take as much world trade as possible and invest. Who knows what sort of productivity levels are available in the future to countries that don't shoot themselves in the foot, technology is still cheap and getting better. You could have whole factories that required 100's of staff operated by a handful (well you can already). As productivity and output per person rises the retirement bomb disappears, especially if those retirees are encouraged to become less reliant on the state and fund their own old age - something that western governments have been loathe to do.

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http://www.telegraph.co.uk/finance/finance...ting-money.html

$99tr is that a misprint???? Should it be bn?

The US has been monetising it's debt for years, have the Chinese really only just realised what the US is doing? The Fed have bee printing for years the outcome may have already been decided and there is nothing China can do.

AUGUST 2008

Here is what he said regarding the actual US debt:

"Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon. Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent."

Interested readers will notice that the new prescription drug benefit is projected to be more fiscally crushing than all of Social Security.

Mr. Fisher points out that this $99.2 trillion will be a bit of a burden to pay off:

"Let’s say you and I and Bruce Ericson and every U.S. citizen who is alive today decided to fully address this unfunded liability through lump-sum payments from our own pocketbooks, so that all of us and all future generations could be secure in the knowledge that we and they would receive promised benefits in perpetuity. How much would we have to pay if we split the tab? Again, the math is painful. With a total population of 304 million, from infants to the elderly, the per-person payment to the federal treasury would come to $330,000. This comes to $1.3 million per family of four—over 25 times the average household’s income."

You do have $1.3 million in your pocket, right? What, are you some kind of deadbeat?

Speaking of deadbeats, the "$99.2 trillion" estimate does not include the subprime bailout. So for those who like large round numbers, by the end of 2008 the real National Debt should be large, round, and about $100 trillion.

Edited by Sybil13

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I think they have a plan, better than having none. Yes there is a retirement time bomb, yes they have actively limited their population growth which has in part created this situation but the alternative would have been (probably) a worse situation.

So, what do they do. Go balls out to improve their economy, take as much world trade as possible and invest. Who knows what sort of productivity levels are available in the future to countries that don't shoot themselves in the foot, technology is still cheap and getting better. You could have whole factories that required 100's of staff operated by a handful (well you can already). As productivity and output per person rises the retirement bomb disappears, especially if those retirees are encouraged to become less reliant on the state and fund their own old age - something that western governments have been loathe to do.

+1

Productivity is key as you say.Capital creation.Investment.Running faster than demographics.Asia will do it.We wont.Our debts are too high for economic growth to outpace our problems.

People get caught up in "we have 4 workers to one pensioner,going to 3",.That doesnt matter if productivity goes up 25%.

The real problem here is capital is being destroyed because it was malinvested in property and consumption.

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+1

Productivity is key as you say.Capital creation.Investment.Running faster than demographics.Asia will do it.We wont.Our debts are too high for economic growth to outpace our problems.

People get caught up in "we have 4 workers to one pensioner,going to 3",.That doesnt matter if productivity goes up 25%.

The real problem here is capital is being destroyed because it was malinvested in property and consumption.

25% is a piece of cake in 90% of industries. You just need the will and the backing. Our banks are only able to throw money at property bubbles. they are now failed institutions, unfit for purpose, they should have been left to rot with others encouraged to do a proper job.

Here's the growth - with productivity to follow.

Robot Orders fall in fourth quarter, but rise in first..

ThomasNet Industrial News Room (press release) - ‎May 8, 2009‎

It's estimated that more than one million robots are being used worldwide, with countries such as China, Korea and India rapidly expanding their investments ...

Here's the rot.

Gingrey: Robotics needs funds

Lawmakers, scientists worried U.S. industry will get ‘behind curve’

By Bob Keefe

The Atlanta Journal-Constitution

Monday, May 25, 2009

WASHINGTON —- Government has spent billions upon billions to help foster the growth of the Internet, satellite networks —- and more recently, the financial and automobile industries.

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Why do I find myself looking to China to stop the US from printing us into an inflationary holocaust?

But all the movies say the USA should be the good guys... :unsure:

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+1

Productivity is key as you say.Capital creation.Investment.Running faster than demographics.Asia will do it.We wont.Our debts are too high for economic growth to outpace our problems.

People get caught up in "we have 4 workers to one pensioner,going to 3",.That doesnt matter if productivity goes up 25%.

The real problem here is capital is being destroyed because it was malinvested in property and consumption.

Exponential growth anyone?

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Britain is doing exactly the same, buying its own gilts and will increasingly do so. The "money" is of course entirely worthless credits printed by the central bank that serves to dilute the value of the pound.

they have admitted they would do £75bn of "QE" but now its £125bn and soon it will be £200bn and so on until we end up like Zimbabwe

you've been warned

Edited by punter

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Britain is doing exactly the same, buying its own gilts and will increasingly do so. The "money" is of course entirely worthless credits printed by the central bank that serves to dilute the value of the pound.

they have admitted they would do £75bn of "QE" but now its £125bn and soon it will be £200bn and so on until we end up like Zimbabwe

you've been warned

But house prices will go up!

monopoly-money.gif

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This is just a long, long, long game of Chicken between the US and China, isn't it?

Everyone knows the USA is f*cked. It's just a case of China calling this fact with the minimum level of self-harm.

I think this is difficult, as I suspect China to be much weaker than is generally acknowledged.

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One slight flaw in your plan.

The Chinese population, it's completely unsustainable.

If they have played the long game they haven't done it too well.

Shrink the population and you get a huge retirement time bomb, don't tackle it and you run out of resources.

China long term is screwed.

what's the retirement time bomb

dont tell me they have the mother of all ponzi finance schemes (Social Security State Pension)

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One slight flaw in your plan.

The Chinese population, it's completely unsustainable.

If they have played the long game they haven't done it too well.

Shrink the population and you get a huge retirement time bomb, don't tackle it and you run out of resources.

China long term is screwed.

agreed.

edit: unless tens millions of us Westerners migrate over there, which could happen.

Edited by InternationalRockSuperstar

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War is increasingly possible. If the Americans print their way out of this mess, China will go mental and stop funding the USA. If the USA doesnt get funding from China, they will increase their posturing at China. Each country would feel like they had a valid reason to base a war on.

Its not highly likely, Im not a nutjob, but you can see the potential conflict brewing.

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