Richard J Grant

Published in The Tennessean , Sunday, March 25, 2012 and Forbes with archives . by Richard J. Grant BEIJING – If China’s government were a monolith, then reading its intentions from its actions would be much easier. There is never a guarantee that the words of a government reflect its true intentions. But there is no certainty that its actions do either. There seems to be the recognition within the Chinese government that they must move away from protection of state-owned enterprises (SOEs) and away from state ownership. SOEs tend to be inefficient and to be disruptive of natural market activity. According to Professor Wen Hai, an economist and Vice President of Peking University, as well as Dean of the HSBC School of Business, SOEs appear profitable only because the government controls their prices. We happen to be meeting the day after the government increased gasoline and diesel prices by between 6.5 and 7 percent. That brings the gasoline price up to about $4.80 per gall...

Published in The Tennessean , Sunday, March 18, 2012 and Forbes with archives . by Richard J. Grant In 2010, China had more than one reason to unpeg its currency from the US dollar. Certainly the Chinese were under pressure from US officials to allow the yuan to appreciate. The Americans had all but officially accused the Chinese of currency manipulation, of keeping the yuan undervalued. But even without this pressure, Chinese officials had reason to question their choice of standard to which to peg their currency. The Chinese were in a position similar to that of the Germans 50 years earlier. In 1960 the German mark had a fixed exchange rate with the US dollar which, in turn, was officially fixed to gold. But as the US began the inflation that would ultimately lead to its break with gold, it transmitted that inflation to all those currencies, such as the mark, that were fixed to the dollar. During 2010, the Chinese consumer-price inflation rate was rising. It peaked out at...

Published in The Tennessean , Sunday, March 11, 2012 and Forbes with archives . by Richard J. Grant Federal Reserve officials continue their search for new and improved methods to invigorate our underperforming economy. According to Jon Hilsenrath in the Wall Street Journal , the Fed's latest idea is to “print new money to buy long-term mortgage or Treasury bonds but effectively tie up that money by borrowing it back for short periods at low rates.” Such a program would change the composition of assets and liabilities held by the Fed. It would also increase the demand for long-term bonds, thereby holding down long-term interest rates a little longer. But the short-term borrowing that finances it would also bid up short-term interest rates. In this regard, it would have the same effect as the recently implemented version of “Operation Twist” in which the Fed has sold short-term securities and used the cash to buy long-term securities. But why doesn't the Fed just create mo...

Published in The Tennessean , Sunday, March 4, 2012 and Forbes with archives. by Richard J. Grant A butterfly flapping its wings in a rain forest is nothing compared to a central banker flapping his lips. Federal Reserve Chairman Ben Bernanke recently told a congressional committee that, although he wouldn't rule out another round of quantitative easing, he did not foresee another round in the near future. With this statement, the dollar rose compared to other assets, as reflected in a sudden 5 percent drop in the price of gold. The silver price also plunged, as did stock prices and Treasury securities. Other than the good news – that the Fed won't be inflating the money supply as much as it has been recently – it highlights the economic impact of one of many government-created agencies. The Federal Reserve Board, through its statutory power to create currency, does not create wealth but has the power to redirect and redistribute wealth. When it inflates the money suppl...