Keynesian economists over at the IMF want to stimulate the Chinese to stimulate their economy. The IMF’s China economic outlook report released on Monday urged the Chinese to increase their government budget deficit to 2% of GDP rather than aiming to lower this percentage. What’s the panic about? Well, you see, if Europe’s economy falls into a recession, the Chinese should step on the fiscal accelerator just as they did in late 2008. The IMF recommends cuts in consumption taxes and new subsidies for consumer-goods purchases and for corporate investments in pollution-control equipment.
Do you think that the Chinese need or welcome such advice? The Keynesians have spread fiscal recklessness throughout the world, and want to make sure that China participates. In any event, the Chinese are better at monetary than fiscal policy recklessness. No central bank on earth has pursued quantitative easing for as long or on a bigger scale as has the People’s Bank of China (PBoC). The PBoC’s assets have increased by 170% over the past five years to a record $4.44 trillion in December. That compares to $2.87 trillion at the Fed and €2.74 trillion at the ECB. The PBoC accomplished this feat by accumulating foreign exchange reserves, which accounted for a record 83% of the central bank’s assets at the end of last year, up from 40% at the start of 2002.
via blog.yardeni.com
Berk: I have suspected that the run up to the 2008 Olympics and the commensurate depreciation of the dollar versus the yuan and abrupt end to that after the Olympics, was the shock that sent the financial crisis in motion.
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