Saturday, December 4, 2010

China Is `Scared' of U.S. Monetary Policy, Rogoff, Rickards Say

Policy makers in China, which holds $883.5 billion in U.S. Treasuries, are concerned the nation with the world’s biggest economy is debasing its currency, according to Kenneth S. Rogoff and James Rickards.

The world is in the early stages of a currency war, said Rickards, chief financial and administrative officer of Oro Capital Advisors LLC. Rickards, Rogoff, a professor of economics and public policy at Harvard University, and Laurence H. Meyer, co-founder of Macroeconomic Advisers LLC, spoke today at the Bloomberg Hedge Funds 2010 conference in New York.

The Federal Reserve’s “good old-fashioned monetary policy” does not intend to devalue the dollar, said Meyer, a former member of the Fed’s Board of Governors.

“The U.S. is not competitively devaluing its currency, that is total garbage,” Meyer said.

Meyer also said Fed Bank of St. Louis President James Bullard isn’t a proponent of raising interest rates to keep inflation from accelerating. Investors who have that perception have misread his comments, he said.

The Fed last month expanded its asset purchase program to buy $600 billion of Treasuries in six months in an effort to bolster the economy. The measure may prompt U.S. legislators to draft trade legislation with countries such as China, which limits movement in its currency, Rogoff said.

“The idea that China is this monster, gorilla in the world economy, is not true -- they are very scared,” Rickards said. “They made one very large mistake, that they trusted the U.S.”

International leaders including Chinese Premier Wen Jiabao have criticized the Fed, saying its policy will cause instability and faster inflation. U.S. Treasury Secretary Timothy F. Geithner has called on China to end its limits on the yuan and let the currency rise against the dollar over time.

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