For those unaware, Beijing has a hilarious habit of trolling America via the long list of Party mouthpiece news outlets at its disposal.
Topics for these “opinion” posts run the gamut from foreign policy to markets and on Thursday evening, a particularly amusing piece showed up on Economic Information Daily.
Needless to say, the yuan’s “soft” peg (and I use that term loosely because it’s only soft when the PBoC needs it to be) to the dollar means that PBoC policy is effectively tethered to Fed policy. On Thursday, China hiked OMO rates (see the full story on that here) and while the central bank pitched it as an effort to kill the arb between repo rates and interbank rates, it was likely also some manner of response to Yellen.
In light of that, consider China’s (un)official take on America’s “selfish” interest rate policy, presented below in all its Google-translated glory…
Guard Against Spike Effect Of Fed’s Continuous Rate Hike
The Fed has raised interest rates. This is the third time after the international financial crisis in 2008. With the first and second rate hike compared to a year compared to the rate hike and the last interval of only 90 days. Moreover, the Fed will also be twice this year and even more rate hike. Frequent rate hikes are in the interests of the United States, and it means that the United States is completely defying the loose policy, which could have a severe impact on the world economy.
It must be seen that the Fed is now able to raise interest rates, that is, the US economy is a strong return – GDP continued to grow, the unemployment rate is as low as less than 5%. The United States finally and China together, become the world economy of the two engines. At the same time, the US inflation is expected to increase, the stock in the hurricane, raising interest rates have their inherent urgency.
The Federal Reserve to raise interest rates, the US domestic affairs is not false, but the dollar as a special property of the international reserve currency, determines the US interest rate increase can not be underestimated the impact of spillovers. Moreover, more is a negative impact.
In fact, for the United States, the dollar as the reserve currency of the biggest dividend, is the world can “cut leek” or cut wool. The US economy to weather the storm, the Fed will raise interest rates, a huge siphon effect to the dollar back, which is the first round of cutting cash, the US economy to weather, Second round cut wool.
For some countries, the US economy is bad, bitter; the US economy is improving, and sometimes more bitter! Because the second round of cutting wool, ranging from capital flight, economic blood loss, while facing a comprehensive political and economic crisis. Since the end of 2015 the Fed began to raise interest rates since the collapse of multiple currencies have been. The strength of the dollar will also exacerbate the weakness of commodities, leaving some resource-exporting countries facing more severe challenges.
Data may be better to explain everything. The Federal Reserve last three rate hike cycle, for example, the first round from February 1994 to February 1995, the Fed raised interest rates 7 times, the benchmark interest rate rose from 3% to 6%; the second round from June 1999 to 2000 In May, the rate hike was raised six times from 4.75% to 6.5%. The third round rose from 17% to 5.25% from June 2004 to June 2006.
The Fed to raise interest rates, the world tightening. The first round of the rate hike cycle, the net capital inflow in 1994 totaled $ 176.7 billion, an increase of 87% over 1993, to $ 254.1 billion in 1996; the second round, the net capital inflow of $ 740.2 billion in 1999, compared with 1998 An increase of 75% in 2000 and a surge of US $ 1.05 trillion in the third round. The net inflow of US capital in 2004 totaled US $ 978.9 billion, an increase of 60% from 2003 and further to US $ 1.06 trillion in 2006.
It can be said that although the three rounds of interest rates in different historical periods, the number of different, but there is a similar result is that interest rates exacerbate the emerging economies of capital outflow, and finally lead to regional and global financial crisis.
In fact, in the last round of interest rate cycle, frequent interest rate hikes the US real estate bubble, the subprime mortgage crisis followed, and then let the United States into the last century since the Great Depression of the 30 years the most serious economic crisis. Undeniably, the US interest rate policy to prevent the outbreak of many US domestic crisis; but it is undeniable that the US selfish interest rate policy triggered many other countries in the economic crisis.
Of course, the crisis of other countries, the Fed to raise interest rates is only the incentive, the most fundamental reason, or the ability of these countries. When the Fed hot money raging, these countries are pleased to accept, but also the lack of motivation to reform; until the dollar tightening, capital flight, all showing the prototype. As Warren Buffett warned: “Only at low tide you can see who is naked.”
In the future, as the US economy continues to improve, the Fed will raise interest rates faster and faster, the spillover effect of interest rate can not be ignored. Do not forget, Nickson ‘s US Treasury Secretary Henry Connley once said that “the dollar is our currency, but it’ s your trouble.