Today’s Bloomberg China has reportedly launched a new monetary stimulus program.
China’s central bank unveiled a wide-ranging monetary stimulus package to revive the world’s second-largest economy, underscoring growing concerns within President Xi Jinping’s government about slowing growth and declining investor confidence.
But is this actually what happens? Here’s what the exchange rate looks like: Chinese Yuan He responded to Monday’s news:
Since this is actually the yuan price of the dollar, the sharp decline indicates that: thanks In won. The flat section is the weekend period, when the market is presumably closed.
I can’t say for sure, but my guess is that the market initially took this news as a monetary stimulus, but then changed course sharply. Michael Pettis It has been argued that China’s monetary policy is intertwined with its credit policy.
The financial systems of China today, and Japan at that time, are structured in such a way that monetary expansion leads primarily to credit expansion, and for well-known institutional reasons, credit expansion is primarily directed to the supply side of the economy.
If so, the market may have interpreted this as more of a fiscal stimulus than a monetary stimulus. Currencies generally fall in value when there is unexpected monetary stimulus news, and currencies often rise in value when there is unexpected fiscal stimulus news (at least in countries where there is little fear of fiscal distress). The Bloomberg article supports the view that this may be credit easing rather than monetary easing.
The move was followed by other announcements that boosted gains in China’s troubled stock market, including from the central bank governor. It was revealed A package to support the nation’s struggling real estate sector, including lowering mortgage rates by up to $5.3 trillion and relaxing rules on second-home purchases.
Other articles Bloomberg Suggested that China was in recession.
China now has all the symptoms “Balance Sheet Recession”: A long period of deflation, a depressed real estate market, a debt pile. And, as in Japan, this was followed by a period of remarkable growth.
I don’t like the term “balance sheet recession” because it’s simply a tight monetary recession. It’s a period of slowing NGDP growth due to tight monetary policy. Falling real estate prices and a debt surplus are symptoms of tight monetary policy. Recently Blog PostsI suggested that China needed monetary stimulus. I think what they got was closer to fiscal stimulus.
