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The Bank of China and the Fed Have Something in Common

Bank of China
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EDITOR NOTE: As Americans, we speak of China as a formidable rival, economically, culturally, ideologically, and militarily. What’s ironic about this is that we fail to see just how similar our government is to the Chinese. The Chinese can impose just about any coercive monetary measure--taxation, limiting deposit rates, curbing market speculation, and dictating the whens and wheres of borrowing and spending--under threat of legal and physical force. The US government, on the other hand, imposes its measures not so much through direct but rather indirect taxation--money printing and the usurping of value and purchasing power from the American consumer and saver. Uncle Sam’s method is a sly wealth transfer from average Americans, particularly the poor, to wealthier asset holders. If you derive most of your income from equities, real estate, and small businesses (and in that order), you’re likely benefitting from all the paper being printed. If you hold physical gold and silver, you may be inoculated from the siphoning of real wealth. If you hold neither, then the value in your money is being transferred over to those who have far more capital than you do. Income inequality courtesy of the federal government? You bet it is! So, how is the Fed all that different from the Bank of China?

Let's compare actions by the Bank of China to the Fed.

Caixin (paywalled) says Chinese Banks Prepare to Lower Deposit Rates as Rate Cap Reform Takes Effect

Reform? What Reform? 

Michael Pettis at China Financial Market takes a crack at the alleged reform in a series of Tweets in reference to the above article (emphasis mine).

  1. A new financial-sector "reform" will allow Chinese banks to lower deposit rates so as to reduce their funding costs, which in turn will allow them to "lower businesses’ borrowing costs, benefiting the real economy."
  2. But this doesn't benefit the real economy: It benefits some sectors (e.g. manufacturing and investment) at the expense of others (e.g. services). With the deposit rate already well below CPI inflation, an even lower deposit rate simply increases the...
  3. implicit financial-repression transfer from household savers to insolvent banks and borrowing businesses (and will further encourage households to speculate in property).
  4. Although Beijing insists that it must rebalance demand, in other words, this is yet another supply-side reform that is balanced with downward pressure on consumption growth. For all the talk of rebalancing, and "dual circulation", the regulator's default mode is to unbalance the economy further, which among other things reduces the labor-intensiveness of growth.

Fed, Bank of China, ECB, Bank of Japan

Q: Is the Fed, ECB, Bank of Japan, etc., doing anything essentially different?
A: Of course not, and it's obvious. 

Banks don't lend from deposits in the US, they lend when they have creditworthy borrowers seeking money. In China, banks lend when the government tells them to lend whether it makes any sense or not. 

Regardless, the CPI is up 5.0% year-over-year and deposit rates are negligible.

In the Eurozone, depositors get negative return for saving.

Fed Will Foolishly Continue QE Purchases in Search of Higher Inflation

On Wednesday, the Fed announced it will Continue QE Purchases in Search of Higher Inflation.

Inflation is a tax on consumers and savers, especially the poor. 

Real Hourly Pay Is Losing to Inflation

Despite Wage Increases, Real Hourly Pay Is Losing to Inflation

Those looking to buy a house have been clobbered by inflation, and it's not even reflected in the CPI. 

Financial Repression Everywhere

The Fed's explicit inflation policy is nothing other than financial repression of the poor for the benefit of asset holders (the wealthy).

Sadly, people in the US are likely to read Pettis' Tweet thread and say "Look at what China is doing to its people" without stopping to think the Fed is doing the same damn thing.

Original post from Mish Talk

Bank Failure Scenario Kit - sm2



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