The Fed And The Bank Of China Both Act To Punish Savers

 

Caixin (paywalled) says Chinese Banks Prepare to Lower Deposit Rates as Rate Cap Reform Takes Effect

Rate Cap 'Reform' in China

Reform? What Reform? 

Michael Pettis at China Financial Market takes a crack at the alleged reform in a series of Tweets in reference to the above article (emphasis mine).

  1. A new financial-sector "reform" will allow Chinese banks to lower deposit rates so as to reduce their funding costs, which in turn will allow them to "lower businesses’ borrowing costs, benefiting the real economy."
  2. But this doesn't benefit the real economy: It benefits some sectors (e.g. manufacturing and investment) at the expense of others (e.g. services). With the deposit rate already well below CPI inflation, an even lower deposit rate simply increases the...
  3. implicit financial-repression transfer from household savers to insolvent banks and borrowing businesses (and will further encourage households to speculate in property).
  4. Although Beijing insists that it must rebalance demand, in other words, this is yet another supply-side reform that is balanced with downward pressure on consumption growth. For all the talk of rebalancing, and "dual circulation", the regulator's default mode is to unbalance the economy further, which among other things reduces the labor-intensiveness of growth.

Fed, Bank of China, ECB, Bank of Japan

Q: Is the Fed, ECB, Bank of Japan, etc., doing anything essentially different?
A: Of course not, and it's obvious. 

Banks don't lend from deposits in the US, they lend when they have creditworthy borrowers seeking money. In China, banks lend when the government tells them to lend whether it makes any sense or not. 

Regardless, the CPI is up 5.0% year-over-year and deposit rates are negligible.

In the Eurozone, depositors get negative return for saving.

Fed Will Foolishly Continue QE Purchases in Search of Higher Inflation

On Wednesday, the Fed announced it will Continue QE Purchases in Search of Higher Inflation.

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