Chinese Inflation (Pats Self on Back), and More
Here is me writing in mid/late-November about how Chinese currency controls are going to hurt it by causing increasing amounts of internal inflation.
Here is Paul Krugman finallylending an official voice of sanity and writing today about this issue as well.
(Pat, pat, pat, pat.)
Of course, what I failed to talk about then, and what Krugman fails to discuss is the following: If internal Chinese inflation is being driven by its currncy manipulation -- the peg of the renmimbe to the dollar (he implies it's almost solely because of this), then why is inflation also going wild in Brazil, and in India, and even in New Zealand? I think it's a combination of things, including the QE2 here, but also China's QE, as well as La Nina and US corn ethanol policies, the former of which has caused among other things, this to happen to Australia and its coal mine and farm land.
Lots of money chasing fewer goods equals inflation. So far, although Americans continue to preemptively freak out about inflation, the U.S. has escaped this, largely. Even if you break out food prices, at least according to this guy, they haven't been inflating that much in the last year or two. In my completely un-expert view, unlike China and India and Brazil, Americans are suffereing from huge unemployment, and don't have lots of excess spending money and savings right now, as those who are employed are busy paying down our credit cards and student loans, and freaking out about spending anything because they're underwater on mortgage loans.
Anyway, we certainly are at an interesting cross-roads. This worldwide food-price inflation story is going all-too-uncovered in the U.S. media I follow, though various bloggers (including on this site) have covered it. I do not see massive inflation happening in America anytime soon, and neither does the government bond market, which expects U.S. inflation to be under 2% per year for the next decade.
Where does this leave us? Not sure. The only thing I know for sure is that given all that is happening in the world, U.S. markets, even after the last two days of drops, seem disturbingly calm to me. And this is to say nothing of the ongoing Euro crisis, specifically the fact that Spain's bond yields keep oscillating ever higher, with higher and higher troughs. The fit really still has the potential hit the shan I think.