I guess we can call this the anti QE. China is taking matters into their own hands by counteracting the negative commodity price increases that have been caused in recent months by the irrational speculation in many markets (via the AP):

“SHANGHAI (AP) — China is banning hoarding of oil, coal and other key commodities, seeking to ensure supplies and cool prices that have surged despite repeated moves to curb inflation.

The government planning agency, in comments published Tuesday, says provinces are forbidden to limit shipments of coal beyond their borders and are required to ensure stable supplies.

Local authorities were ordered to crack down on hoarding, bogus bids meant to drive prices higher, and other illegal practices.

China is trying to cool inflation that surged to a 25-month high in October. Authorities say soaring food prices are mainly to blame, but costs for fuel and other necessities have also jumped, as supplies have run short.”

The irrational QE trade is coming undone piece by piece.  The Federal Reserve has caused severe market distortions in recent months based on sheer misconception and misunderstandings of a policy they clearly don’t comprehend.  It’s nice to see a foreign government taking matters into their own hands by trying to counteract this blatant attempt to keep asset prices “higher than they otherwise would be”.   The Fed isn’t the only one in town who can try to blatantly manipulate market prices.  They may have met their match in China.


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • GW

    Really appreciate your analysis and follow your posts regularly. However, I think your linkage of “QE” and commodity inflation in China misses part of the point in singling out the US Fed for blame. It is equally true, perhaps, that inflation in China is due to the yuan peg, a decision wholly for the Chinese. Rather than clueless policy on the part of the Fed, one could also see Fed policy as (intentionally) forcing China’s hand on the issue of balance of accounts and domestic currency policy. Chinese price and production controls are not new. They have failed many times in the past, producing further distortions in the Chinese economy. If China “blows a gasket” this time around, I suspect we might look back on this period as the time when the US got the upper hand with China. In the end, the PRC has much more to lose than the US in this contest of wills. If the result also leads to political change in China, we might be seeing Ben Bernanke as a hero five years from now.

  • Brandon Ferro

    They are directly stating or alluding to that “higher than they would be otherwise” thing in nearly everything they write or say now.

    I womder if it is safe to say that as a result of such bltantly transparent desperation, the Fed has lost its powers to effect the economic outcomes it desires…

  • James

    As with everything it all has to do with politics and money. This QE is trying to force China to not peg its currency to the dollar or raise the value of the yuan. If not then they will encounter very high inflation due to everything getting more expensive dollar related (and thus yuan related too since it is pegged) as well as a heated economy which causes inflation.

    And they say the Fed isn’t political…

  • roger erickson

    what overshadows everything in this whole discussion is the abject lack of leadership by the US Treasury & Administration;
    if he’s honest at all, why wouldn’t Bernanke should just have an extensive sit-down conversation with Congress, Geithner & Obama

  • Oroboros

    I think China has about as much ability to control “hoarders” and “speculators” as the Fed does of controlling where the ZIRP money flows. They’d both like to control these things … but … like a dog with two heads at opposite ends, when each head wants to go in a different direction they start pissing each other off. Lots of barking and gyrations, but little sustained forward progress.

  • Brian

    Hoarding is one of the most destructive economic activities that one can participate in. Hoarding is practically synonymous with asset bubbles.