Food for Thought

I received this little nugget today:

WSJ NEWS ALERT: China Central Bank Raises Reserve Requirement

__________________________________
News Alert
from The Wall Street Journal


China's central bank will raise banks' reserve-requirement ratio by half a percentage point, the second such increase this year.

The increase, which takes effect next week, is the latest move by China to curb inflation. The consumer-price index rose 4.9% in January, up from December's 4.6% rise.

China's official reserve-requirement ratio for most banks will be 19.5% after the latest move takes effect, according to the central bank.
http://online.wsj.com/article/SB10001424052748704900004576151783089244032.html?mod=djemalertNEWS


My thoughts about this:
1) Hmmm. China's version of the Fed is raising borrowing rates because inflation is going up too fast there.

2) The US buys a LOT of stuff from China. In 2010 we bought $273 BILLION more worth of stuff from China than they bought from us. (http://www.census.gov/foreign-trade/balance/c5700.html#2010)

3) Is inflation in China a result of easy money made available in the US? I think probably.

4) Is that good or bad for us? Stream of consciousness here -- We buy 273 BUSD more than we get... Now China has 273B. China uses the 273B to invest/buy US Treasury Bonds. US has 273B and owes China 273B plus we pay China interest on these bonds. Thinking about an interesting point Jesse said in his comments on the last post, if inflation outpaces the interest rate, do we come out ahead? Due to inflation, China gets a lot of cash from real US businesses and workers. They lend this money to US gov't. US pays a relatively lower amount than is coming in if rates are lower. Seems like we are transferring the wealth of the US to China. China is not under any obligation to invest in US Treasury bonds. If the value of the dollar starts to go down, they can invest in Swiss Francs for example, or buy real companies. I don't know if I'm on to anything here. Starting to ramble. Brain getting bored with this idea....

5) Does inflation in China cause a delay or even prevent inflation in the US and screw up my last idea? I think no. Real world example:

Carson Rotisseries has grills made in China and sent to the US to sell. To have them made there, the materials needed to make up the grill are bought in China. Inflation is happening there, so costs to make the grill go up. This means Blake, Glenn, and Vogel have to sell them for a higher price in the US to maintain their same profit margin or they start to lose money. Price for a grill goes up, so now I have to pay more for the grill. So I charge more for audits to make up that money, and on and on. Damn it! This inflation has gotten back to me again!

Now it seems like the government of China gets the secret tax that the Fed made up for US Government and US big banks. Ruh roh.

New investment idea: BUY MUTUAL FUNDS IN CHINA