Sunday, April 17, 2011

The vertical pedal

is now being pushed to the floor. What a predicament. Entire cities of vacant "assets" that created loans (and corresponding bank deposits) based on the ephemeral conjurings of a corrupt political leadership. Defending the currency further weakens export strength (recall the trade deficit figures and the "amazing" transition to internal demand) causing more and more concentration in the speculative areas of the Chinese economy. Unintended consequences indeed, and fasten your seatbelts.

(from Reuters)
The reserve rate rise, which followed an increase in benchmark bank interest rates on April 5, was the seventh since China stepped up efforts against inflation in October and underscored the government's determination to keep the economy on an even keel.

The move was not a surprise -- investors predicted more tightening after last week's data showed an acceleration in inflation, and more worryingly, sustained capital inflows that threaten to keep inflationary pressure high.

"This rise continues the tightening measures of the central bank," said Lin Songli, an economist with Guosen Securities in Beijing. "The first-quarter GDP shows that the whole economy is good, so there is still space for tightening."

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