Dream on Bernanke, Krugman, yet be prepared for a rude awakening

China Drains Obama Stimulus Meant for U.S. Economy: Commentary by Andy Xie
By Andy Xie - Aug 17, 2010 4:00 PM GMT-0300
Business ExchangeTwitterDeliciousDiggFacebookLinkedInNewsvinePropellerYahoo! BuzzPrint The global economy is like fried ice cream: If you don’t act fast, it turns into a mess.
American pundits, Nobel laureates included, are predicting Japan-style deflation for the U.S. and Europe. They are urging the Federal Reserve to pursue another round of quantitative easing to stop the onset of an Ice Age for Western economies. The Fed didn’t oblige at its last meeting, but it threw a bone to the deflation crowd by promising not to pull money out of its previous round of asset purchases to stimulate a recovery.
On the other side of the world, consumer prices are surging. Emerging markets as a whole now have an inflation rate of more than 5 percent. India is registering price increases of more than 13 percent. China’s are more than 3 percent. But it surely feels a lot higher for average Chinese.
Much of the “heat” comes from the property market in emerging markets. Million-dollar flats in Mumbai have panoramic views of the city’s slums. Hong Kong’s real-estate prices have almost reclaimed their 1997 peak, though the economy has barely grown since then in per-capita terms. Overpaid bankers who pay 15 percent income tax in Hong Kong are stretched to buy Beijing or Shanghai properties. Moscow is somehow always near the top of the list of the world’s most expensive cities.
The emerging markets are on fire.
Rude Awakening
Deflation prophets in the West are in for a rude awakening. Eastern fire will turn Western ice into a mess, and 2012 looks like it will be the year of melting. The fuel for the fire is coming from deflation-fighting stimulus programs, such as that of U.S. President Barack Obama.
Stimulus is prescribed as a panacea for recession. In today’s global economy, it isn’t effective in the best of circumstances and is outright wrong for what ails the West now.
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Comment: What the present crisis really has in common with the Great Depression is the incompetence of the leading American economists at this time. Back then it was mainly Irving Fisher, today it is Bernanke, Krugman, Stiglitz, Blinder, ....