The Bank of China has raised rates five times this year. And today (via Bloomberg):
China ordered banks to increase
reserves by the most in four years to try to prevent the world's
fastest-growing major economy from overheating.
With sound money, there would be no need for worries of "overheating." When one person trades his production for the production of another person, it would be impossible for economic activity to "overheat." Only with an expansion of the money supply can such a situation exist.
The above article continues:
China's consumer prices jumped 6.5 percent in October from
a year earlier. Inflation is accelerating because of higher food,
energy and labor costs. Faster inflation makes it harder for the government to
prevent asset bubbles because people would rather put money in
stocks or property than leave it in the bank to lose value.
Actually, rising prices are the result of an increase in the money supply. And the government does not prevent asset bubbles, it creates them with, once again, an increase in fiat money.
Money supply grew 18.5 percent in October from a year
earlier, breaching the central bank's annual target of 16
percent for the ninth straight month.
It's safe to say there is plenty of malinvestment in China. Now that credit is tightening, we'll most likely be able to see where the malinvestment has occurred, i.e., what projects have been started that should have never been started in the first place.
Posted
Dec 08 2007, 08:23 AM
by
ChrisR