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PBOC COMPOUNDS MISTAKE OF OVERVALUED YUAN WITH LOWER INTEREST RATE [Copy link] 中文

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Post time 2015-10-24 12:19:08 |Display all floors
This post was edited by abramicus at 2015-10-24 14:03

The world witnessed the "bold" move of the PBOC seemingly heroically trying to jumpstart the dying economy due to the overpricing of Chinese products abroad in dollars and at home in yuans, caused by the overvalued Yuan exchange rate, by lowering the one-year lending rate from 4.6% to 4.35%, the one-year deposit rate from 1.75% to 1.50%, and the reserve ratio requirements by 0.5% from 18% to 17.5% for most large banks, and by another 0.5% for banks serving small businesses and agricultural firms.

Ostensibly, this move will increase liquidity in the economy, enabling investors to borrow more money to invest in production.

In reality, investors cannot and will not invest if the goods or services that they produce cannot sell in both the international and domestic markets, due to the overvalued Yuan exchange rate.  This liquidity will therefore end up being used to buy whatever goods are already produced, domestically or by foreign factories, leading to inflation, NOT PRODUCTION.

Furthermore, this increased liquidity will be cancelled by the PBOC's active intervention in the currency markets, buying up Yuans with China's dollar reserves, leading to a quick drying up of the injected liquidity, and accelerating China's loss of its foreign currency reserves.

This is what happens when the PBOC lowers the interrest rate and reserve ratios on the one hand, and sells dollars to buy up the injected Yuans with the other hand --- domestic inflation, continued manufacturing contraction, and accelerated loss of China's hard earned foreign currency reserves --- all of which are what the PBOC should have been PREVENTING, NOT PROMOTING.

Is this misguided suicidal economic policy of the Economic Hit Men due to ignorance, lack of intelligence, or disloyalty to their own people, strangling their manufacturing industries, laying off their workers, and giving away their hard earned foreign currency savings to foreigners, with NOTHING TO SHOW FOR IT, but more "solutions" that accelerate the destruction of China's economy?  If this is not treason, what is?





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