Tuesday, June 12, 2007

When China Sneezes .....

.... we get a cold:

The reason that this news [China needing to cool down it's economy due to enormous growth and inflation] is of such interest to the US is because of the implications it holds for China's monetary policy, which faces increasing pressure to cool down the Chinese economy. The classic ways to do that would be to raise domestic interest rates, and/or to allow the currency to appreciate against the dollar. Either of these steps could cause a reduction in official Chinese purchases of US bonds, thus contributing to a rise in interest rates in the US.

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