|
|
Those looking for massive inflation cannot find it
in the US where credit contraction is still underway. However, one can find
massive inflation in China, where increases in money supply and credit run
rampant, and property and food prices soar.
Please consider China Hides Rampant Inflation in Money Binge: Patrick Chovanec
High-end property prices in dozens
of Chinese cities have doubled during the global financial crisis. Sales of
gold bars have done the same this year. Fine pieces of jade are selling at
$3,000 an ounce, up 50 percent in the past couple of months, while packets of
certain types of dahongpao tea are going for
$30,000 a kilogram. Art and wine auctions in China are pulling in record
prices, while the Shanghai stock market surged 8.5 percent last week to the
highest level in almost six months.
If it seems like there’s a lot of money sloshing around the Chinese
economy, that’s because there is. Over the past two years, M1 expanded
by 56 percent, M2 by 53 percent. Currently, even with much-touted
“cooling measures,” both are still growing at an annual rate of
about 20 percent.
...most people in China seem content to believe their country has found a
fantastic new formula for prosperity.
In reality, there is rampant inflation in China. It’s just showing up
in asset prices. The new money that was created entered the economy as loans,
mainly to fund investment in fixed assets. When it finally reached consumers,
they bought tangibles, like property, instead of spending on consumer goods.
Chinese Inflation Shows Up in Food and Property
Prices
The New York Times reports Food and Property Prices Drive China’s Concern Over Inflation
China’s roaring economy
slowed in the third quarter, rising at an annual rate of 9.6 percent after
the government took steps to prevent overheating, according to data released
Thursday. But inflation last month hit its highest rate in nearly two years.
The government said the consumer price index, the broadest measure of
inflation, rose 3.6 percent from the previous September. It was the highest
rate in China since 2008, largely because of food prices, which rose 8
percent last month.
Interest rates on savings deposits in China had recently fallen to about 2.25
percent a year before the decision Tuesday. (The government-mandated rate is
now 2.5 percent.) But inflation has risen steadily this year, which means
bank depositors are essentially facing a negative interest rate return.
And yet, things may be even worse than the consumer price index suggests. A
growing number of analysts say inflationary pressure is stronger than the
price index indicates, because it is heavily weighted toward food —
particularly pork prices. Rising energy, property and transportation costs
are not as significant a factor in the index. And even the price increases of
many food items — aside from pork — are also not adequately
weighed or calculated, analysts say.
Basket of Nonsense
These stories highlight the problems of measuring "inflation" with
a basket of consumer prices. The Greenspan and Bernanke Feds both made huge
mistakes by ignoring property prices.
It is actually impossible to pick a representative basket of goods and
services. Moreover, and more importantly, even if one could pick such a
basket, bubbles caused by inflation can form in equities, commodities, land
prices, housing, or other assets.
Please remember this is a global economy. Prices, especially commodity
prices, are set at the margin, and based on global demands, not just on
demands in the US.
Many have misguidedly pointed to rising commodity prices as proof of
inflation. All things considered, that "proof" pertains not to the
US, but rather to China where credit, monetary, and price inflation are all
clearly running rampant.
|
|
