Tuesday, October 19, 2010

My Letter to the WSJ re: China Raises Interest Rates

From: patrickbarron@msn.com
To: wsj.ltrs@wsj.com
Subject: Re: China Raises Interest Rates
Date: Tue, 19 Oct 2010 09:23:57 -0400

Re: China Raises Interest Rates

Dear Sirs:
Economic data from China is always suspect. I doubt that China's inflation rate, as measured by its CPI, is below 4% as officially reported. By holding its currency cheap China has subsidized its export industries at the expense of higher prices in the rest of its economy. This classic mercantilist policy was bound to fail. If the Bank of China ceased its currency interventions, there is little doubt that China's interest rates would go much higher, causing a necessary restructuring of China's economy and an end to price and asset inflation. This move is always resisted by powerful interests who have become rich due only to government manipulation of the currency and other interventions. It is the same everywhere in the world. The first nations to abandon mercantilism will reap the gains of capital inflows. It appears that China has learned this lesson.

Patrick Barron

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