Talk of different policy tools makes no difference at all
It is indeed true that the PBOC is not shrinking its balance sheet like the US Federal Reserve. Instead it has been trashing that balance sheet.
The central bank will not take action to shrink its balance sheet like the US Federal Reserve, as it does not face the same pressures due to its use of different policy tools, an adviser to the People’s Bank of China said yesterday.
Reuters, SCMP, June 23
I like the imagery there – the leather-aproned craftsman in his sunlit workshop carefully selecting the tools he needs for the job in hand and then wielding them with delicate precision to fashion an instrument of wonder.
What we actually have in the Fed is a group of bemused academics, totally at sea in the real world, hoping against reason that they can painlessly unwind a deeply flawed stimulus programme that stimulated financial speculation rather than the productive economy. This is what is meant by “shrink its balance sheet”.
And what we have in the PBOC is a desperate firefighter rushing with his fire hose from one new outbreak of flame to the next, panic reaction masquerading as considered monetary policy.
Policy tools, hah!