Have the Chinese been too audacious? Is the last decade or so reminiscent of Professor Niall Ferguson's portrayal of Germany's slide into Weimar hyper-inflation within ‘The Ascent of Money’? Let’s try juxtapose this historical episode with the contemporary financial landscape of China. The analogy, albeit imperfect, suggests potential parallels. Should China find itself ensnared in a monetary quagmire—a scenario I reckon it currently navigates—the genesis of such a crisis would most likely be traced to domestic policy decisions but its origin might lie with a different take on the quantitative easing of the US Federal Reserve.
The US is the largest global trade donor country, the consumer of last resort, but in 2008 perhaps the Feds figured that the US couldn’t take it any more? Did the US reject China’s neo-mercantilism in 2009? Two destructive, domestic boom/bust cycles within a decade had left American gross debt almost four times GDP. The domestic economy had become unresponsive to even record fiscal expansion and zero overnight rates. Something surely had to be done to regain the initiative. Polite requests for the Chinese to allow their currency to revalue higher versus the dollar were rebuffed, and in its absence, expansionary American fiscal and monetary policy only served to make China richer. Not ok. So did America fight back with QE?