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It’s Not All About China

December 27, 2010 – 6:16 pm

China increased interest rates over the holiday weekend by .25% to try and slow inflation. It is an effort to reduce the strong growth of the economy in China and in turn ease some of the pressures that are pushing prices up. There is an e-mail circulating in China that it takes a peasant in China 1,100 years to afford a home (as printed in the Financial Times this morning). That is a comment on the high home prices that have skyrocketed in recent years. It sounds like they are experiencing the U.S. runaway home appreciation in certain parts of our country a few years ago.

China has been raising bank reserves in the past but has now decided more direct moves are necessary. This effort can be looked at as either good or bad. If successful, a slower economy in China could mean a slower economy world wide or it could mean a slower economy in China is much more sustainable, pricking a bubble before it gets out of hand, thus a world economy that will continue to grow.

All this focus on China is probably justified but the U.S. economy is not reliant on China. From a U.S. perspective it appears that our economy is gaining traction and that may well mean more growth for China at a time they need to slow down to get ahead of inflation.

China is important but they are not the only, or even the main economic power in the world. They are just the fastest growing though India is not far behind. We want them to curtail inflation because in the long run it helps the entire world. We have already gone through unrestrained economic excess. We don’t need to do that again.

Good Trading
Steve Peasley

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