Libertarian Jackass

"Life is short, but truth works far and lives long; let us speak truth." -- Schopenhauer

Tuesday, August 26, 2003

China Slows The Rate At Which The Government Is Impoverishing The Society

The Chinese Central Bank slows money supply growth:

"China's central bank announced steps during the weekend to tighten what it called excessive bank lending in an effort to stave off possible inflation. It increased a reserve requirement on the country's commercial banks, allowing it to curb money supply growth in an economy expanding at more than 8 percent a year as it tries to reduce corporate defaults."

"Central bank officials said this month that excess money supply -- coming largely from rising exports to the United States that are bought with U.S. dollars -- and runaway credit might hurt the economy."

Because increasing the supply of money means a redistribution of wealth to the initial recipients of the money (the Chinese financial sector and government favored groups) AND the start or continuation of lines of production (investments) which would NOT OTHERWISE be created, society is impoverished in relation to what COULD HAVE been produced. Interestingly, as this article implicitly points out, it is the increase in the supply of money by the central bank which leads to the rise in prices. However, the rest of the article is full of economic fallacies including the fear of falling prices and the myth of "consumer demand" and recessions.

But, the real interesting item is the 25 billion dollar in speculative capital flooding into China on the bet that the yuan will rise against the dollar. Mark my words, this is at the heart of the issue. The Central Bank has instituted a price ceiling on the yuan (the exchange value of the yuan against the U.S dollar) which cannot be maintained.

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