Yglesias

Chinese Discomfort With Aggressive Monetary Stimulus Highlights Its Virtues

Catherine Rampbell observes that though market reaction to growing signs that the Federal Reserve will take action to boost growth has largely been positive, the editorial line out of Xinhua is quite different.

The Chinese government’s discomfort with monetary stimulus is understandable. Monetary stimulus plus Chinese currency policy will equal an undesirably large amount of inflation in China. That means that in order to avoid an undesirably large amount of inflation, Chinese leaders will need to engage in a more rapid currency readjustment than they want to. That, however, merely underscores that unilateral monetary action is the right way for the US government to handle our concerns about China’s currency policy. We don’t need to threaten them, or bribe them, or cajole them, or go to “currency war” or anything. What we need to do is to adopt monetary policies that are appropriate for our economic situation. The Chinese will learn to deal with it, and in the longer term we’ll all be better off.