China's Goldilocks Monetary Policy
The central planners in China are telling us they know exactly how much credit the second largest economy in the world needs, and where it needs to go.
What is the neutral monetary policy? 2017 monetary policy will be tightening? In today’s China Economic Forum 50 annual meeting, the central bank vice president Yi Gang for the first time in response to the meaning of neutral monetary policy, he said, “sound Monetary policy is a neutral monetary policy we will maintain the overall stability of monetary policy, “he further explained that the sound monetary policy is a neutral trend, and the neutral situation is not tight.
Yesterday’s financial data released in January showed a new loan of 2.03 trillion yuan in January, although lower than the level of the same period last year, but also hit the second highest level in the history of the month. At the same time in January the scale of social financing reached 3.74 trillion yuan, a record high since the data statistics. Yi Gang said that the amount of two trillion the number of loans should also be a very suitable number of loans.
What is neutral monetary policy? A neutral policy with respect to the currency is the gold standard. But they’re not talking about gold, or inflation, but credit. What is neutral credit policy? Obviously faster growth is loosening, and slower growth is tightening, but what are they trying to control for? If they’re aiming for GDP growth or short-run financial stability, “neutral” credit policy would be loosening. If they’re neutral on monetary policy, they will allow credit disinflation, slower than expected GDP growth and asset price deflation in 2017. If they think they will hit some magic equilibrium in the middle, they are hoping for Goldilocks.