China, and Global Growth, Matter

 | Nov 30, 2011 | 6:57 AM EST  | Comments
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At last, a countervailing thrust to the whole shooting match: a reserve requirement cut of 50 bps by the Chinese Central Bank. I am sure that by the time you read this, people will have already said any of the following:

  1. Too little, too late.
  2. China's insolvent, too. Have you seen their banks?
  3. We don't need China's reserve requirement lower, we need money to Europe.
  4. Without oil going down, this will only stoke inflation fears.

All are true. By this time Thursday, there will be some news out of Belgium or Italy that supersedes this news. I am sure of that.

But the one reason why I do like this is because it addresses the one thing that is missing throughout the debate about what is happening in Europe. While it seems that there is little hope of any positive resolution, there is no hope whatsoever without growth. You need a combination of some inflation via newly-printed Eurobonds, some austerity that is credible (which seems to be the case in Spain), some change that really does cut into the bloated government welfare state, some help from the IMF, some sense of confidence that the banks will not fail or if they sold there is a plan and most of all you need growth.

If we don't get growth, there is no way out of this hole. We either go full-scale deflation or, perhaps, if things really get desperate, full-scale hyperinflation. We need global growth wherever we can get it and we want that to be the contagion, not credit dry-up and no ability to finance.

The Chinese rate cut is integral to world growth. So is employment growth here. So is Brazilian GDP. We need India to cut. This is a nice start.

We need more if there is going to be an avoidance of DEFCON 1.

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