A Dollar And Change In Beijing

The Telegraph's Ambrose Evans-Pritchard is once again reporting that China is warning America about Helicopter Ben's little printing press problem.

"We hope there will be a change in monetary policy as soon as they have positive growth again," he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

"If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said.

China's reserves are more than – $2 trillion, the world's largest.

Such a public warning out of the otherwise inscrutable Chinese is tantamount to having China's ambassador to the US standing outside the White House and chucking eggs at the front door. Treasury is going to try to hem and haw this off as just talk, but this is a real problem. On one hand, when the stimulus wears off, 2010 and 2011 are going to be economically miserable. One the other hand, inflation is going to catch up with us at some point, resulting in the same thing, just further down the road. If Helicopter Ben raises rates too quickly, growth will get strangled, if he does it too slowly inflation will smash the country. It's an ugly position and Ben Bernanke role in getting us into this mess must be noted.

But hey, four more years!

[UPDATE 8:20 AM] The Telegraph also has an interesting article where two economists say America is headed down the Peronista collapse road that destroyed Argentina's economy and will put us in another depression.

Although the authors support the Federal Reserve's moves to slash interest rates to just above zero and embark on quantitative easing, pumping cash directly into the system, they warn that greater intervention could set the US back further. Rowley says: "It is also not impossible that the US will experience the kind of economic collapse from first to Third World status experienced by Argentina under the national-socialist governance of Juan Peron."

Which is funny, because the mistakes of the Depression were that not enough government intervention and oversight caused a major collapse. Since when do conservatives think deficit spending is bad? They've been doing it for 30 years.