US monetary policy to blame for asset bubbles

Wall Street Journal


China’s top banking regulator issued a sharp critique of U.S. financial management only hours before President Barack Obama commenced his first visit to the Asian giant, highlighting economic and trade tensions that threaten to overshadow the trip. Liu Mingkang, chairman of the China Banking Regulatory Commission, said that a weak U.S. dollar and low U.S. interest rates had led to ‘massive speculation’ that was inflating asset bubbles around the world. It has created ‘unavoidable risks for the recovery of the global economy, especially emerging economies,’ Mr. Liu said. … His comments signaled that Mr. Obama — on the third leg of a four-country Asian tour — can expect blunt talk from Chinese leaders on the economy...

The dollar dips

The Weekly Standard
by Irwin M. Stelzer


It seems that investors, or at least many of them, have decided that the Obama administration and the Bernanke Fed are combining to depreciate the dollar, the former willingly to encourage exports and create jobs, the latter warily. Talk of the devaluing of other nations’ paper currencies at one time produced a flight to the dollar, deemed safe from the depredations of rulers trying to shore up their struggling economies by printing money. But times have changed. There is now so little faith in the value of the dollar, which has dropped to about a 15-month low against a basket of currencies, that investors are fleeing to Brazilian reals and Russian rubles — or so it seems. Of course, with interest rates in America close to zero, some investors are borrowing dollars at virtually no cost, and using them to buy assets in nations in which interest rates are high enough to make such a trade profitable. The influx of these funds drives up the value of assets in other countries, creating the danger of ‘bubbles,’ which might burst if this footloose, ‘hot money’ is suddenly withdrawn. Which has the recipient countries more than a little nervous, and Brazil has adopted a tax to discourage an inflow of dollars...

Informant: Thomas L. Knapp


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