Category Archives: China

Goldman on monetary policy in the BRICs

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Excellent recap of what’s happening through the eyes of Wall St. in the BRICS.

To be noted:

The BRICS all seem to be fighting inflation, which means the problem is that bad.

Unfortunately, hiking rates via direct rate hikes, reserve requirement hikes, and the like, which they all are doing, add to aggregate demand through the interest income channels, making their inflations that much worse. (That’s the price of being out of paradigm, as reinforced by analysts who are also out of paradigm)

Some are using credit controls, which do slow demand, as does fiscal tightening which generally happens through automatic stabilizers that work through higher nominal growth, including reduced transfer payments and higher tax receipts.

In general, this type of thing tends to end with a very hard landing, which their equity markets may be starting to discount.

BRICs Monthly : 11/04 – Monetary Policy in the BRICs

Published April 28, 2011

The BRICs’ central banks rely on a variety of tools to adjust monetary policy. As output gaps have closed and inflation pressures have accelerated, policy stances in the BRICs have shifted meaningfully towards tightening. We expect policy to continue to tighten in the coming months via a combination of policy rate hikes, reserve ratio requirement hikes and other measures.

There is a large degree of variation in the stated goals of monetary policy and the tools used to achieve those goals, both among the BRICs and relative to the advanced economies. The BRICs (like many other emerging markets) rely more heavily on a broader set of tools than is typical in the developed world. These include several policy rates, reserve ratio requirements, open market operations and FX intervention. As a result, looking at the policy rate alone does not provide an accurate picture of the overall monetary policy stance.

Over the past year, BRICs’ policymakers have shifted from an accommodative policy stance (in response to the financial crisis) to tightening (in response to closing output gaps and rising inflation pressures). However, the unusual shape of the global recovery—in which most of the BRICs and other EMs have rebounded quickly, while the developed world has lagged behind—has brought about a shift in the way in which the BRICs have tightened monetary policy. This time around, most have relied less on policy rate hikes and more on alternative tools.

While the BRICs have tightened monetary policy meaningfully, we believe that more is on the way. We expect Brazil, India and Russia to hike their policy rate by another 125bp and China to hike by 25bp by end-2011. In addition, we expect further tightening through the exchange rate, the reserve requirement ratio and other measures.

Monetary Policy in the BRICs

There is a large degree of variation in the stated goals of monetary policy and the tools used to achieve those goals, both among the BRICs and relative to advanced countries. The BRICs (like many other EMs) rely more heavily on a broader set of tools than is typical in the developed world. Hence, looking at the policy rate alone does not provide an accurate picture of their monetary policy stance.

Brazil’s monetary policy framework has shifted dramatically over the past two decades. As it struggled against hyper- and high inflation in the early 1990s, the government first introduced a period of extremely high interest rates (over 50%) in 1994, and then transitioned in 1995 to a soft exchange rate peg accompanied by high and volatile interest rates. In 1999, Brazil shifted to its current inflation-targeting regime. The current inflation target is set at 4.5%, with a relatively wide band of +/- 2% and no repercussions if the target is missed (as it has been for the past three years). To this end, COPOM targets the SELIC interest rate (the overnight interbank rate).

China uses a more eclectic form of monetary policy that involves a range of players, objectives and instruments. The People’s Bank of China (PBoC) is the official implementer, but the central government often weighs heavily on the PBoC’s decisions. The Bank does not hold regular policy meetings and policy changes are typically released after the close of the local market without advance notice. The Monetary Policy Committee of the PBoC is an advisory body, which does not determine policy direction. Chinese monetary policy has an official quad mandate of growth, employment, inflation and a balanced external account. To achieve these goals, the PBoC uses a range of quantity- and price-based mechanisms, such that there is no single policy instrument that can be used as a main indicator of its monetary policy stance at any given time. Quantity-based tools include reserve requirement (RRR) changes and credit controls. Price-based tools include changes in the benchmark deposit and lending interest rates.

India’s monetary policy is conducted by the Reserve Bank of India (RBI), which has the dual mandate of price stability and the provision of credit to productive sectors to support growth. To this end, the RBI targets the interest rate corridor for overnight money market rates, with the reverse-repo rate as the floor and the repo rate as the ceiling. The RBI also utilises open market operations and two types of reserve ratio requirements (the cash reserve ratio and the statutory liquidity ratio).

In Russia, monetary policy is set by the Central Bank of Russia (CBR). Until recently, the CBR concentrated on exchange rate stability and allowed inflation to vary. Its main policy rates are the overnight deposit rate and the 1-week minimum repo rate, although these historically have played a subordinate role to FX intervention. The CBR also monitors liquidity through reserve requirements, FX interventions and open market operations.

Shift in BRICs’ Approach to Monetary Tightening

The unusual shape of the global recovery—in which most of the BRICs and other EMs have rebounded quickly, while the developed world has lagged—has brought about a shift in the way in which the BRICs have tightened monetary policy.

Policymakers in Brazil have been hesitant to raise rates as aggressively as they normally would in response to the current high-growth/high-inflation domestic cyclical picture, given their concern that this would attract greater capital inflows. Instead, they have increasingly relied on two alternative mechanisms to tighten the overall policy stance: (1) a gradual FX appreciation and (2) several ‘macro-prudential’ measures that slow the pace of new credit concessions, raise the cost and lengthen the maturity of new loans, and raise the tax on foreign fixed income inflows.

Over the recent cycle, Chinese policymakers have relied most heavily on explicit and implicit credit controls, including window guidance meetings and the Dynamic Differentiated RRR System (under which the PBoC imposes a differentiated RRR for some banks but removes it for others, if they have been following government lending controls). Frequent RRR hikes have generally not produced any net tightening, as they were counterbalanced by increased FX inflows and expiring central bank bills. Likewise, recent interest rate hikes have been an effective signalling device but have been too small in magnitude to have a large impact.

In India, the RBI has kept liquidity tight in order to pass policy rate hikes through to bank deposit and lending rates. However, excessively tight and volatile liquidity has caused overnight borrowing rates to fluctuate widely in recent months, such that market participants have focused more on liquidity than policy rate actions in determining the direction and magnitude of interest rates at the short end. In an effort to address this issue and increase transparency, the RBI has proposed shifting to a single policy rate target (the repo rate) while simultaneously improving its control over system-wide liquidity.

Russia has seen the largest change in its monetary policy framework since the onset of the financial crisis. The CBR has shifted towards more FX flexibility with a greater focus on inflation, with the goal of an eventual move towards an inflation targeting regime (although, as the CBR has highlighted, such a move would ultimately be a government decision, which is unlikely to be realised in the absence of a strong political will to make the change). To this end, the CBR has moved towards interest rates as its primary monetary policy tool, and has scaled down its presence in the FX markets. It now sterilizes most FX interventions so as not to impact money supply growth. It has also relied more heavily on reserve requirement changes in recent months, in an effort to signal tightening liquidity.

More Tightening to Come

While the BRICs have meaningfully tightened monetary policy via a variety of tools, we believe more is needed. Demand-driven inflationary pressures are picking up as output gaps close, contributing to an acceleration in core inflation. Moreover, the BRICs also face large food and energy price spikes, which are likely to continue to push up headline inflation at least through the summer. In addition, fiscal policy is not turning sufficiently contractionary, leaving the burden of tightening on monetary policymakers.

In Brazil, we expect five more SELIC hikes by 25bp per meeting and further macro-prudential measures. For China, we forecast at least one more rate hike (25bp in 2011Q2), further currency appreciation (6% annualised), liquidity absorption measures through RRR hikes and open market operations, and tight control over credit issuance. We have a much more hawkish view of India than consensus, where we now expect the RBI to hike policy rates by another 125bp in 2011. Russia’s CBR should hike deposit and repo rates by 150bp and 125bp respectively by end-2011.

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China’s dollar reserves being used to fight inflation?

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This may be some of the most recent data:

The SAFE Releases Data on Chinas External Debt at the End of September 2010

Excerpt: “At the end of September 2010, China’s outstanding external debt (excluding that of Hong Kong SAR, Macao SAR, and Taiwan Province) reached USD546.449 billion. Specifically, the outstanding registered external debt reached USD326.549 billion and the balance of trade credit totaled USD219.9 billion. ”

Then Mktwatch reported this end Dec 2010:

China’s external debt nears $550 billion: Safe

Escerpt: “HONG KONG (MarketWatch) — China’s external debt was $548.938 billion at the end of 2010, compared to $546 billion owed at the end of the third quarter, according to newswire reports Thursday that cited figures released by the State Administration of Foreign Exchange. Of that total, China’s short-term debt was $375.7 billion, or equivalent to 13.2% of China’s foreign exchange reserves, the agency said”

CAUTION,THIS IS ALL VERY PRELIMINARY AND COULD PROVE TO BE ENTIRELY WRONG

I got this response, and I’m looking further into it.

I don’t think this includes dollar debt of state banks and state owned enterprises.

What it means is that China’s net reserves aren’t as high as generally believed, and that they are being ‘spent/lent’ by borrowing dollars and then spending, leaving the gross, headline reserve number intact, rather than spending the reserves directly.

They could even be buying their own currency to drive it higher to fight inflation.

This would be an interesting, quasi desperation move, as it would mean they are willing to risk export markets to try to keep prices in check.

It would also help explain the downward drift in the dollar over the last 6 months or so.

And currency support under these circumstances is also, in general, unsustainable. If the trade flows have turned against them due to inflation, they will burn through all their reserves trying to support their currency without a lot more fiscal tightening at all levels, and a very hard landing as well. And even that might not be enough, depending on how institutionalized the inflation is.

All speculation on my part at this point.

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from Press Conference

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I thought he did a AAA job within his paradigm.

The answers on the dollar were spot on- ultimately the dollar is worth what it can buy, so ‘low inflation’ is a strong dollar policy in the long term. It’s pretty much the purchasing power parity argument. Additionally, he said a strong economy helps the dollar, citing the capital inflow channel, probably a reference to China and other emerging market nations. And I might have added the fiscal tightening channel, as strong economies tend to cause federal deficits to fall via automatic fiscal stabilizers.

Interestingly, he did not mention specifically how higher oil prices, set by a foreign monopolist, continue to work against the dollar.

Nor how highly deflationary policies in other currencies tend to strengthen those currencies relative to the dollar.

And there was no mention of how portfolio shifting alters the dollar, which may be the largest driver currently.

Let me suggest, however, it would have been more nearly correct for him to have said the policy of low inflation and strong growth also happens to support the dollar, rather than imply a strong dollar was the policy variable.

He remains out of paradigm on the QE issue, still not realizing it’s entirely about price and not quantity, but that was to be expected.

The more dovish tone from the FOMC indicates some fundamental insecurity about the economy. Yes, they remain moderately optimistic, but probably continue to worry disproportionately about the downside risks. They see downside risks to demand everywhere from the euro zone and the UK, to Japan and China, and, though recognizing nothing of consequence has happened yet, they hear the fiscal sabre rattling from both the left and the right. And they see it’s unlikely for the housing channel to provide much support in the near future as it’s done in previous cycle.

Also, second chance to buy my 100oz gold bar at the current spot price of gold!
When I offered it for sale when gold was $1,200, no one wanted it so I still have it.

:)


Karim writes:

1) Extended period means a ‘couple of meetings’.
2) Q1 GDP weakness transitory (i.e., they didn’t alter the outlook for rest of f/cast period) due to
   a. timing of defense outlays
   b. timing of export shipments
   c. weather
3) No fiscal measures that have been announced so far have altered their near-term outlook
4) Impact of Japan supply disruptions ‘moderate and temporary’
5) Strong and stable dollar in U.S. best interest

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MBA’s index of loan requests for home purchases tumbled 13.6 percent

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This is disturbing, along with still weak housing price indicators, and the ongoing downward revisions to GDP forecasts, as aggregate demand remains under international attack on all fronts.

On the govt side, China is cutting demand to fight inflation, with India and Brazil presumed to be doing same. Austerity measures continue to bite in the UK and the euro zone, and are looming in the US.

On the private credit expansion side, regulatory over reach continues to restrict lending by the US banking system, and particularly with the small banks. This limits both bank and non bank lending, as the non bank lending is most often at least indirectly dependent on bank lending.

Additionally, the rising costs of food and fuel are taking purchasing power from those with the higher propensities to consume and shifting it to those with far lower propensities to consume.

And, of course, ongoing QE continues to remove interest income from the economy, as does the shift of interest income from savers to bank and other lender net interest margins, in a process that has yet to reach the national debate as a point of discussion.

Other commodity prices also continue to rise as hoarding from pension funds and the like via passive commodity strategies continues to expand globally.

This sends price signals that increase supply, which means human beings are being mobilized to produce stockpiles of gold, silver, and other metals and commodities not to ever be used for real consumption, but to forever remain as ‘reserves’ to index financial performance as demanded by current institutional structures. This is a monumental waste of human endeavor as well as the real resources, including energy, that are committed to this process.

So at the macro level we are removing teachers from what have become over crowded classrooms, removing nurses from neglected patients, and removing workers from building, repairing, and maintaining our homes and other infrastructure, to send them to either the unemployment lines or the gold mines.

And because they think at any moment we can suddenly become the next Greece, both sides agree with the necessity and urgency of promoting this policy.

Mortgage Applications Fell Last Week: MBA

April 27 (Reuters) — Applications for U.S. home mortgages fell last week as higher insurance premiums for government-insured loans sapped demand, an industry group said Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 5.6 percent in the week ended April 22.

“Purchase applications fell last week, driven primarily by a sharp decrease in government purchase applications as new, higher Federal Housing Administration premiums went into effect,” Michael Fratantoni, MBA’s vice president of research and economics, said in a statement.

The decline reverses a recent increase in government purchase applications, which was likely due to borrowers trying to beat the deadline, Fratantoni said.

The MBA’s seasonally adjusted index of loan requests for home purchases tumbled 13.6 percent, while the gauge of refinancing applications slipped 0.6 percent.

Fixed 30-year mortgage rates averaged 4.80 percent in the week, easing from 4.83 percent the week before.

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What happened to Q1?

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This is typical of recent announcements:

“With most of the news on 1Q growth now in, the GDP “bean count” looks even softer than it did a couple of weeks ago. The most recent disappointments have come on the export side—with trade now set to subtract significantly from growth in the quarter—and from inventories. Consequently, we are downgrading our real GDP growth estimate to 1¾% (annualized), from 2½% previously (and from 3½% not too long ago).”

So what went wrong?

Maybe, as I guessed at just prior to year end:

The effect of world austerity was underestimated, particularly in Europe and China?

The effects of income channel from QE2 (remember the Fed turning over $79 billion to the tsy that the economy would have earned if the Fed hadn’t bought/owned those securities?) were underestimated?

The effect of the year end tax adjustment was less than anticipated, as work for pay that was eliminated maybe had higher propensities to consume than the 2%, one year FICA reduction?

Rising gasoline prices slowed things down some?

Rising food price as we burn up our food supply for fuel wreak havoc world wide?

So how about Q2, which is starting about as high as Q1 did?

High food and gasoline prices continue.

Supply disruptions from the Japan.

The Fed owns more tsy secs and has thereby removed more interest income from the economy.

World austerity intensifies, now including the US.

China’s inflation fight intensifies.

And business top line growth starting to falter from modest levels?

And this time the fiscal safety nets are in jeopardy as govt’s believe they have ‘run out of money’ and need to tighten up, with Japan now the prime example, looking at tax hikes to ‘pay for’ earthquake damage.

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China Daily | Zhou Pledges More Tightening as China Raises Reserve Ratios

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As previously discussed, changing reserve ratios and the like does nothing more than raise the cost of funds to the banks, much like a ‘normal’ rate hike.

And, also as previously discussed, higher rates more often than not add to inflationary pressures, rather than subtract from them.

Ultimately, it is the fiscal adjustments that bite, including reduced deficit spending (both proactive and, more common, via automatic stabilizers, particularly increased tax receipts due to nominal growth) and reduced state lending, all of which is in progress. Reductions in state lending are also, functionally, best considered ‘fiscal’ measures.

This all typically results in a very hard landing.

China Raises Reserve Ratio to Curb Inflation as Zhou Pledges More to Come

April 17 (Bloomberg) — China increased banks’ reserve requirements to lock up cash and cool inflation, and central bank Governor Zhou Xiaochuan said monetary tightening will continue for “some time.”

Reserve ratios will rise a half point from April 21, the People’s Bank of China said on its website yesterday, pushing the requirement to a record 20.5 percent for the biggest lenders. The move came less than two weeks after an interest-rate increase. Zhou sees no “absolute” limit on how high reserve requirements can go, he said April 16.

The nation’s fifth interest-rate increase since the financial crisis may come as soon as next month after inflation accelerated in March to the fastest pace since 2008, Societe Generale SA said. Chinese policy makers may also consider allowing faster appreciation in the yuan, described by the U.S. as “substantially” undervalued, to reduce the cost of imported commodities such as oil.

Higher reserve requirements “will help tighten monetary conditions and prevent banks from lending aggressively in the coming month,” said Liu Li-Gang, an Australia & New Zealand Banking Group economist in Hong Kong who formerly worked for the World Bank. Policy makers may also increasingly rely on the yuan to contain “imported inflation,” Liu added.

Geithner’s Case

The Shanghai Composite Index rose 0.4 percent as of 11:09 a.m. local time. Non-deliverable yuan forwards were little changed, indicating expectations for the currency to rise about 2.3 percent in the next 12 months from 6.5293 per dollar.

U.S. Treasury Secretary Timothy F. Geithner says a stronger Chinese currency would both counter inflation within the Asian nation and aid efforts to reduce economic imbalances that contributed to the global financial crisis.

The yuan has gained about 4.5 percent against the dollar since June last year, when China scrapped a crisis policy of keeping the currency unchanged against the greenback. Analysts’ median forecast is for the currency to climb to 6.3 per dollar by year end.

Speaking in Washington yesterday, PBOC Deputy Governor Yi Gang said the yuan is close to being freely usable, which would allow it to be included in the International Monetary Fund’s Special Drawing Rights basket. He said April 15 that a gradual appreciation of the currency would help his country overcome inflation.

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Senator Richard Blumenthal- not so innocent subversion

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I spoke with Senator Blumenthal for several hours on MMT just over a year ago, before he was elected Senator.

He read my book and asked the right questions.

He knows imports are real benefits, exports real costs.

He knows the trade deficit is a good thing for America.

He knows that his proposals would reduce our real terms of trade and lower our standard of living.

And he knows taxes function to regulate aggregate demand,

and that we can readily sustain full employment by keeping taxes at the right level for a given size of government.

He remarked that it was how he had learned it at Harvard in the 1960’s.

And he called me several times to discuss specific issues in detail.

With this letter he has turned subversive for presumed political gain.

I see it as a clear case of politics over patriotism.

I likewise discussed this with Senator Carl Levin, but maybe 15 years ago, who also seems to have decided to place politics over patriotism.

If I had the authority, I would prosecute for treason.

April 14, 2011

The Honorable Timothy J. Geithner
Secretary of the Treasury
1500 Pennsylvania Ave. NW
Washington, DC 20220

Dear Mr. Secretary,

We write to urge you to make fundamental currency misalignment a central issue at the G-20 meeting in Washington, DC this week. For too long, this issue has festered, harming not only American companies and workers, but also the economy of every country that meets its International Monetary Fund (IMF) commitments to allow the level of its currency to be determined by markets.

The consistent interference of a few countries in currency markets creates an uneven global playing field, perversely encouraging other countries to intervene as well. The resulting currency misalignments distort global markets, creating instability at a time when the world can ill afford it.

While multiple countries are guilty of currency manipulation, China unfortunately stands out from the rest. Its mercantilist policies occur on a grand scale. In the fourth quarter of 2010, China intervened in currency markets by purchasing $2 billion worth of foreign currency a day, adding $199 billion to its foreign currency reserves. Not surprisingly, in its recent 2011 Global Economic Outlook, the IMF calls the RMB “substantially weaker than warranted” and finds a “key motivation for the acquisition of foreign exchange reserves seems to be to prevent nominal exchange rate appreciation and preserve competitiveness.”

China’s policies work as intended: The RMB has had almost no appreciation against the dollar since May 2008. China’s illegal practices make Chinese-produced goods cheaper than similar products made in America, driving up our trade deficit with China and putting Americans out of work. The United States’ trade deficit with China reached a staggering $273 billion last year, costing our country thousands of jobs.

The IMF cites the accumulation of official foreign exchange reserves as “an important obstacle to global demand rebalancing.” Removing this obstacle should be a key U.S. priority. Ironically, China’s refusal to allow the RMB to appreciate in a meaningful way is contrary to its own best interest. Economists agree that China needs to rebalance its economy to rely more on domestic consumption than on export-led growth. This necessary rebalancing would ultimately tame Chinese inflation, improve global economic growth, and remove a key barrier to a more fruitful U.S.-China relationship.

The United States does no one a favor by downplaying this crucial issue. We urge you to work together with all countries harmed by currency manipulation to press China to allow the level of the RMB to be determined by markets, not government interventions. When everyone plays by the same rules, our entrepreneurs and workers can compete and win in the global economy.

Sincerely,

Sen. Debbie Stabenow

Sen. Sherrod Brown

Sen. Olympia Snowe

Sen. Carl Levin

Sen. Sheldon Whitehouse

Sen. Bob Casey

Sen. Ben Cardin

Sen. Kirsten Gillibrand

Sen. Jack Reed

Sen. Richard Blumenthal

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World Finance Chiefs Chastise US on Budget Gap

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So with the entire world completely wrong,
but nonetheless in charge,
seems a reasonable bet to assume weak demand and a too wide output gap/too high unemployment will continue indefinitely?

That is, fear of looming national solvency crisis (becoming the next Greece)
is causing the world to go, at best, the way of Japan, as the real risk remains deflation.

Not that there won’t be relative value shifts, particularly where there is pricing/monopoly power.
With crude oil the main concern.

The ignorance remains overwhelming, on monetary operation and trade policy, as well as fiscal policy, as highlighted below:

World Finance Chiefs Chastise US on Budget Gap

April 17 (Reuters) — World finance leaders Saturday chastised the United States for not doing enough to shrink its massive overspending and warned that budget strains in rich nations threaten the global recovery.

Finance ministers in Washington for semi-annual talks took sharper aim than in previous years at the United States’ $14 trillion debt.

While most of the criticism came from emerging market economies, some advanced nations joined the chorus.

Dutch Finance Minister Jan Kees de Jager warned that if the United States and other advanced nations move too slowly it could undermine confidence in the global economy.

“Insufficient budgetary consolidation may spark off further escalation of debt sustainability issues, with repercussions on confidence and the still fragile financial sector,” de Jager told the International Monetary Fund’s steering committee.“Debt dynamics in other advanced economies, including the United States, are of concern.”

The IMF this week said the U.S. budget deficit was on course to hit 10.8 percent of nation’s economic output this year, tying with Ireland for the highest deficit-to-GDP ratio among advanced economies. It urged Washington to move quickly to put a credible plan in place to tighten its belt.

Brazil’s finance minister, Guido Mantega, offered sharp words in a thinly veiled attack on the United States. “Ironically, some of the countries that are responsible for the deepest crisis since the Great Depression, and have yet to solve their own problems, are eager to prescribe codes of conduct to the rest of the world,” he said.

The Group of 20 countries agreed on Friday to a plan that could put more pressure on the United States to fix its deficits as well as push other leading economies to address
their own shortcomings.

The IMF’s advisory panel on Saturday said issues of financial stability and sovereign debt stability must be addressed, saying in a communique that “credible actions are needed to accelerate progress.” It emphasized the need for fiscal consolidation in advanced economies while avoiding overheating in emerging economies.

The Obama administration and the U.S. Congress are locked in battle over how best to fix the deficit. Republicans are pushing for deep spending cuts as part of the argument over raising the nation’s $14.3 trillion debt limit, something which is needed to avoid an unprecedented U.S. debt default.

The Republican-led House on Friday approved a plan to slash spending by nearly $6 trillion over a decade and cut benefits for the elderly and poor.

President Barack Obama, who has offered a competing vision to curb deficits by $4 trillion over 12 years, said Thursday the Republican plan would create “a nation of potholes.” The White House is wary about cutting spending sharply while the economic recovery remains fragile.

Treasury Secretary Timothy Geithner told fellow finance ministers on Saturday caution was needed. “We are committed to fiscal reforms that will restrain spending and reduce deficits while not threatening the economic recovery,” he said.

Geithner was quick to say others whose policies contribute to global imbalances must change too, “especially those whose fundamentals call for greater exchange rate flexibility…”

The United States has repeatedly called for China to relax its limits on the yuan currency.

Yi Gang, a deputy governor of China’s central bank, called for “more rigorous” efforts by advanced economies to tighten budgets and said the IMF needs to strengthen its monitoring of these rich nations.

Russian Finance Minister Alexei Kudrin, taking aim at the U.S. Federal Reserve, said central banks that buy government debt to keep interest rates low were abetting fiscal profligacy.

The Fed is on course to complete the purchase of $600 billion in U.S. government debt by the end of June, which would take its total purchases of mortgage-related and government debt since December 2008 to nearly $2.3 trillion.

Echoing Republican lawmakers and even some Fed officials, Kudrin said those purchases blurred the line between monetary and fiscal policy in a way that could jeopardize a central
bank’s independence.

“We observe this process with some wonderment, since it amounts to the monetization of those countries’ budget deficits,” Kudrin said.

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CH Daily | New yuan lending falls to 2.24 trillion

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More evidence of restricted state lending as the fight against inflation continues.

To their credit, no signs of an actual hard landing yet, but the battle is still on.

China’ new loans stand at 2.24t yuan in Q1

(Xinhua) The People’s Bank of China (PBOC), the country’s central bank, said that new yuan-denominated loans stood at 2.24 trillion yuan ($342.83 billion) in the first quarter of 2011. The figure was 352.4 billion yuan less than that in the same period of last year, said the PBOC in a statement on its website.

Banks suspend mortgage loans

(China Daily) Some bank outlets in Shanghai have suspended mortgage loans to home buyers, the China Securities Journal reported. An anonymous developer said, the Shanghai outlets of the China Industrial and Commercial Bank, the Agricultural Bank of China, the China Minsheng Banking Corp Ltd and the Industrial Bank Co Ltd all suspended issuing loans. “Banks do want to lend, but they may have no money for lending” the developer said. China has raised the reserve ratios for banks nine times since last year, and 3 trillion yuan of banks’ capital has been frozen as a result. Sources with the above mentioned banks said they have not stopped mortgage loans, but have more strict requirements for granting these loans.

Beijing March New House Prices Plunge 26.7% M/M: Press

BEIJING (MNI) – Prices of new homes in China’s capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city’s Housing and Urban-Rural Development Commission.

Average prices of newly-built houses in March fell 10.9% over the same month last year to CNY19,679 per square meter, marking the first year-on-year decline since September 2009.

Home purchases fell 50.9% y/y and 41.5% m/m, the newspaper said, citing an unidentified official from the Housing Commission as saying the falls point to the government’s crackdown on speculation in the real estate market.

Beijing property prices rose 0.4% m/m in February, 0.8% in January and 0.2% in December, according to National Bureau of Statistics data.

The central government has launched several rounds of measures since last year designed to cool the housing market, though local government reliance on land sales to plug fiscal holes mean enforcement hasn’t been uniform.

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U.S. Consumer Spending/Credit

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This is a good sign top line growth was continuing it’s modest growth in March.

Federal deficit spending continues to work to add the income and savings that allows consumers to both reduce their credit card debt and expand their consumption.

Deficit spending continues to be sufficient to support the modest GDP growth and employment growth we’ve been experiencing.

However, the risks remain as discussed at year end:

US deficit reduction efforts, with both sides agreeing that the deficit is THE problem, with some of the proposed cuts more than sufficient to trigger negative GDP growth and rising unemployment.

China’s fight against inflation leading to a hard landing.

UK and euro zone austerity measures passing the tipping point where further austerity measures slow growth sufficiently to increase national govt deficits.

Saudi crude oil price hikes both slowing world demand and triggering anti inflation responses that remove demand.

Additionally, world growth should slow by an unknown amount due to supply disruptions form the earthquake in Japan.

Consumers borrow more for student loans, new cars

April 7 (AP) — U.S. consumers borrowed more money in February to buy new cars and attend school, but they cut back on using their credit cards to make purchases. Borrowing increased by $7.6 billion, or 3.8 percent, in February. It was the fifth consecutive monthly gain. The category that includes car loans and student loans increased 7.7 percent. Borrowing in the category that covers credit cards fell 4.1 percent. That has risen only once in the more than two years since the 2008 financial crisis peaked. The gains pushed total borrowing up to a seasonally adjusted annual rate of $2.42 trillion in February. That’s 1 percent from the three-year low hit in September.

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