No, it’s not European debt; rather it’s Chinese deflation (excerpt):
“Fed tapering” seems to be repeated in every single story in the financial media over the last couple of days. However, I am afraid that the financial media – as often is the case – is overly US centric. We might want to look at another central bank than the Fed. We should instead pay some (a lot!) of attention to the People’s Bank of China (PBoC)...
...It seems to me that the PBoC is just continuing the excessive tightening and that seems to be the real culprit behind the stream of bad economic data we have got out of China recently. It looks like Chinese monetary policy failure.
So yes, Bernanke might have a communication problem, but at the moment it seems like the biggest monetary policy failure is Chinese rather than American.
The article Lars quotes shows some pretty worrying developments in the Chinese interbank market – rates have spiked, indicating a liquidity crunch that the PBoC is not accommodating.
To corroborate this info, watch gold…I’ve always felt the runup in gold prices this past decade was more a story of Chinese (and Indian) monetary policy than the Fed’s. As of yesterday, spot gold is at its lowest level since January 2011 – today’s price has fallen to levels not seen since September 2010, before recovering a bit.
That aside, this is not good news for anybody, especially commodity exporting nations such as Malaysia. I’m afraid weakness in the Ringgit is going to be much more persistent that I expected, and growth harder to come by.