Today Bloomberg China has reportedly introduced new monetary stimulus measures.
The People’s Bank of China announced a wide-ranging monetary stimulus package to revive the world’s second-largest economy, highlighting growing concerns within President Xi Jinping’s administration about slowing growth and eroding investor confidence.
But is this actually what happened? Chinese Yuan reacted to the news on Monday.
This is actually the price of the yuan against the dollar, so the sudden drop Thanks For the renminbi, the flat period occurred over a weekend when the market was likely closed.
I’m not sure, but it seems to me like the market initially interpreted this news as monetary stimulus and then quickly reversed course. Michael Pettis They argue 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, which, for well-understood institutional reasons, is directed primarily at the supply side of the economy.
If so, markets may have treated this as more of a fiscal stimulus than a monetary stimulus. Note that currencies generally fall on unexpected news of monetary stimulus, and often rise on news of fiscal stimulus (at least in countries with little threat of fiscal collapse). The Bloomberg article supports the view that this may have been credit easing rather than monetary easing.
Those moves were followed by a series of announcements that boosted China’s struggling stock market. Published The package includes up to $5.3 trillion in lower mortgage borrowing costs and relaxed rules on second home purchases to support the country’s struggling real estate sector.
Another article Bloomberg He suggested that China was in recession.
China is now “Balance sheet recession”The story goes like this: a long period of deflation, a slump in the real estate market, and excessive debt, followed, as in Japan, by a period of phenomenal growth.
I don’t like the term “balance sheet recession” because it is simply a tightening recession, a period of slowdown in NGDP growth caused by tight monetary policy. Falling real estate prices and debt overhang are symptoms of tight monetary policy. Blog PostI suggested that China needed a monetary stimulus. I think what they got was more like a fiscal stimulus.
