China warns Federal Reserve over 'printing money'
China has warned a top member of the US Federal Reserve that it is
increasingly disturbed by the Fed's direct purchase of US Treasury bonds.
By Ambrose Evans-Pritchard
24 May 2009
Richard Fisher, president of the Dallas Federal Reserve Bank, said:
"Senior officials of the Chinese government grilled me about whether or not we
are going to monetise the actions of our legislature."
"I must have been asked about that a hundred times in China. I was asked
at every single meeting about our purchases of Treasuries. That seemed to be
the principal preoccupation of those that were invested with their surpluses
mostly in the United States," he told the Wall Street Journal.
His recent trip to the Far East appears to have been a stark reminder
that Asia's "Confucian" culture of right action does not look kindly on the
insouciant policy of printing money by Anglo-Saxons.
Mr Fisher, the Fed's leading hawk, was a fierce opponent of the original
decision to buy Treasury debt, fearing that it would lead to a blurring of the
line between fiscal and monetary policy – and could all too easily degenerate
into Argentine-style financing of uncontrolled spending.
However, he agreed that the Fed was forced to take emergency action after
the financial system "literally fell apart".
Nor, he added was there much risk of inflation taking off yet. The Dallas
Fed uses a "trim mean" method based on 180 prices that excludes extreme moves
and is widely admired for accuracy.
"You've got some mild deflation here," he said.
The Oxford-educated Mr Fisher, an outspoken free-marketer and believer in
the Schumpeterian process of "creative destruction", has been running a fervent
campaign to alert Americans to the "very big hole" in unfunded pension and
health-care liabilities built up by a careless political class over the years.
"We at the Dallas Fed believe the total is over $99 trillion," he said in
February.
"This situation is of your own creation. When you berate your
representatives or senators or presidents for the mess we are in, you are
really berating yourself. You elect them," he said.
His warning comes amid growing fears that America could lose its AAA
sovereign rating.
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