China could cause a new international financial crisis

One wonders whether Barack Obama will be able to convince Hu Jintao that it is time to loosen the reins on the yuan. China is a poor country at its core, but its population and rapid growth make it the world’s most intriguing economic superpower. China’s monetary policy could be leading the nation toward a financial crisis that will reverberate across the globe, writes Paul Krugman within the NY Times. China might be the next country to take out huge personal loans. Post resource – Chinese monetary policy has the world seeing red by MoneyBlogNewz.

China will not begin to see the chasm

The yuan is one thing the Chinese government has been trying to maintain tight control over as inflation is one thing looked poorly upon. In a January 21 NY Times op-ed piece, Paul Krugman states this has already led to an artificially large trading surplus, which has increased unemployment in many countries, including the U.S. More of China holding down the Yuan could be really bad. IT would mean that China would have a more inflation-prone economy while the unemployment rate won't go up.

There is inflation so that an economic market can undo currency manipulation. This is what Krugman points out. China has kept the yuan weak and suppressed wages and prices. While the Chinese government’s goal is apparently maintaining competitive advantage within the global sector, industry forces have forced China’s wages and prices up. Thus, at China’s current rate of inflation any manipulation it has done can be erased within a few years.

China’s leaders do not want this

Protecting exporters also as fighting the idea of high inflation is why the Chinese government is fighting. Krugman explains that the world market is being fought. Inflation rates are much higher than the 2.75 percent interest rate China allows financial institution deposits to have. This is bad for the country. In accordance with Krugman, economic exploitation of the populace is what is happening. He believes that it will only get worse the way things are headed.

China states that the United States and Federal Reserve have printed too much cash which is the only reason why the yuan is going up. Credit is being restricted while interest rates are going up in China. It is much harder to try and enforce China's credit as there is a lot of outside money coming to the country. It probably won't work, however China is nevertheless trying to keep controls on prices. Krugman states if China continues on its current course, the collateral damage towards the world economy could be devastating.

Information from

New York Times

nytimes.com/2011/01/21/opinion/21krugman.html?_r=1&partner=rssnyt&emc=rss

China wants more U.S. investment opportunities

youtube.com/watch?v=pbdz2UiW6es