Sunday, December 6, 2009

BIS targets wrong people....

Apparently the BIS is worried about China's loosening of monetary policy potentially creating systemic risk.

That's all well and good, except for the fact that (a) the economy is still growing rapidly, (b) China's growth is fueled by exports, so an international investment glut is unlikely, to say the least, and most importantly (c) large lenders in China are maintaining Capital Adequacy ratios over 11 per cent.

When the banks collapsed in the Asian crisis of 1997-8, capital adequacy ratios were a mere 2-3%. In fact, standard provisioning under Basel II still runs in the 4% range. So, financial collapse, especially now that the major crisis has stabilized and international regulations are (hopefully) tightening, seems unlikely to say the least - especially in an economy where growth is NOT fueled by speculative bubbles. In short, China's looser monetary policy is far more constrained than the US and EUs policies, and backed by a much more solidly growing economy.

Dear BIS, please stop picking on the developing world, and start paying attention to the speculative financial markets fueling the current crisis - the ones in the US and EU!