Hot Money Fears in China, yet "World needs $100 trillion more credit", says World Economic Forum [and our take on it]
China's monetary policy is constrained by monetary policies of other countries, especially the FED's low interest policies. These policies expose China to a greater risk of Inflation in the future because higher interest rates (which should normally reduce the money supply) would cause too much "hot" money to flow into china, possibly causing the opposite effect.
The root of the problem is too much cheap money around the world.
Chen Dongqi, a senior researcher under the powerful National Development and Reform Commission (NDRC), also said that Beijing should not raise its inflation target for 2011 from the current 3 percent level, despite evidence of rising prices.
On interest rates, Chen said: "If there were no external factors, China would definitely have to increase interest rates as quickly as possible,".
"But if the external factor, by which I mean hot money, has a big role to play, you can't raise interest rates too early or too aggressively as it could intensify expectations of a stronger yuan and lure more capital inflows," Chen added.
Read more at: Hot money fears to limit China rate increases
Yet despite the flood of credit and cheap money the World Economic Forum (WEF) is calling / forecasting for a massive expansion of credit
"This doubling of existing credit levels could be achieved without increasing the risk of a major crisis, said the report from the WEF ahead of its high-profile annual meeting in Davos."
Note: The World Economic Forum (WEF) is a Geneva-based non-profit foundation best known for its annual meeting in Davos, Switzerland, which brings together top business leaders, international political leaders, selected intellectuals and journalists to discuss the most pressing issues facing the world.
Personal Take [by Gregor Gregersen]:
"We are standing on the Titanic, just spotted another Iceberg, and everybody is cheering to see bigger icebergs and urging the captain to go faster... We all know how that ended".
When an authoritative body such as the WEF makes calls for a further doubling of credit it gives policy makers the cover to justify loose monetary policies and deficit spending. This loose money policy even forces other countries to tag-along to prevent their currencies from appreciating too much. Thus the mantra of "solving the problem of too much debt with more debt" is alive and well in mainstream economic thought.
As the chain of interrelated debts is growing larger and larger, currency continues to become worth less at an increasing pace and as the ratio of real assets to debts increases the case for owning assets without counterparty risk (e.g. Physical Bullion) is alive and well.