Discussion on the Impact of Over-Issuance of Currency on Volatile Economic Trends: Insights from ‘Pinnacle View’

The world economy has navigated turbulent waters in recent years, with challenges including a global pandemic, post-pandemic economic woes, geopolitical tensions, trade fragmentation, and rising financial stress. Major powers have responded by engaging in substantial over-issuance of currency, experts told NTD’s “Pinnacle View” program last week. However, the central bank policies may be aggravating global economic uncertainty.

China’s M2, the broadest measurement of money supply, has grown consistently over the past decade, reaching almost 300 trillion yuan—nearly 41.6 trillion U.S. dollars—at present. That amount is almost equal to the combined M2 supply of the United States, Europe, and Japan. The People’s Bank of China, China’s monetary authority, issued more than 11.9 trillion yuan ($1.64 trillion) last year—a record amount.

Despite the infusion of money, China’s economy is not growing at high speed, leaving economists to ask, “Where has the money gone?” Moreover, given the huge side effects of massive money printing, will the world economy be able to achieve a soft landing as analysts are predicting?

On the April 11 “Pinnacle View” show, TV producer Li Jun, journalist Guo Jun, and business professor Frank Tian Xie discussed global economic trends in light of geopolitics, central bank policies, and the U.S.–China relationship.

Multiple Factors Behind Current Inflation

Independent TV producer Li Jun said on the “Pinnacle View” program that the current surge in money issuance differs from previous episodes in that cash is being injected directly into households, particularly in the United States and Europe. This has led to an immediate increase in the money supply, adding to inflationary pressures. While the Federal Reserve’s continuous interest rate hikes over the past year and a half have shown some effect, inflation remains a persistent challenge.

Mr. Li said he agrees with some analysts who believe that beyond the direct impact of money printing, several other factors are contributing to the current inflationary environment.

“The first factor is a shift in consumer spending patterns. Prior to the pandemic, consumer spending was shifting from goods to services. However, the pandemic has reversed this trend, with a sharp increase in consumption of goods. This surge in demand for essential goods has strained production capacity, leading to price increases,” Mr. Li said.

The second factor is rising labor costs, as the pandemic has also affected the labor market, particularly in North America and European countries. With many individuals leaving or opting out of the workforce during the pandemic, labor shortages have emerged. Employers face higher labor costs when hiring new workers, which translates into higher production costs and, consequently, higher prices for consumers.

Third, the pandemic has disrupted global supply chains that were previously optimized for cost efficiency. As countries now prioritize security and stability in their supply chains, supply chain restructuring has also contributed to upward pressure on prices.

According to Mr. Li, the combined effect of these factors is that inflation is not likely to ease in the near term.

While some analysts project a 70-80 percent chance of a soft landing for the global economy, JPMorgan Chase CEO Jamie Dimon has expressed a more pessimistic view, highlighting the potential for a more prolonged period of inflation, he said.

In a recent shareholder letter, Mr. Dimon said he sees much lower odds of a soft landing, given rising food and energy prices, steeper borrowing costs, and recession risks.

“We may be entering one of the most treacherous geopolitical eras since World War II,” Mr. Dimon warned. The impacts of geopolitical and economic forces “are large and somewhat unprecedented; they may not be fully understood until they have completely played out over multiple years.”

The Divergent Paths of Quantitative Easing

“Pinnacle View” panelist Frank Tian Xie is the John M. Olin Palmetto Chair professor in business and professor of marketing at the University of South Carolina Aiken. Mr. Xie said that many governments today promote the popular conception of Keynesian economics, namely, that government intervention—including printing money—can stabilize the economy.

However, Mr. Xie continued, when these countries print money and create inflation, they are actually stealing the wealth of society.

Many nations that issue currency of their own have sovereign currencies, which means that the government has the power to print money, Mr. Xie explained.

“This power can be checked in countries where central banks operate independently,“ he said, ”but in others, such as China, the central bank is under the jurisdiction of the State Council, which allows unrestrained printing of money to satisfy the government’s political objectives.”

In an authoritarian model such as that of the Chinese Communist Party (CCP), “printing money will benefit the government first, and the rich can get loans at a good preferential rate, so this part of the population can also benefit, but the majority of the people will be at a disadvantage.”

Mr. Xie clarified a misconception that printing more money directly stimulates the economy. He explained that while a country’s Gross Domestic Product (GDP) may nominally increase due to inflation, real economic growth may not improve.

In a normal situation, economic growth should lead to the creation of new wealth, which then requires more money in circulation. In China, excessive money printing precedes actual economic growth, demonstrating that this strategy does not automatically lead to economic expansion.

Furthermore, despite significant money printing, China does not seem to be experiencing expected levels of inflation. Mr. Xie said this is because the government controls both the narrative and the calculation methods. While reported prices for certain items like food might remain stable, overall prices are indeed rising.

“There is also another reason: the money printed by the CCP was not distributed to consumers as it was in the United States,” Mr. Xie continued. “In the United States, stimulus money during the pandemic went directly to low- and middle-income individuals and small business owners … In contrast, China channels its printed money to state-owned banks and enterprises, where it often covers existing debt or ends up in the hands of corrupt officials, leading to significant wealth inequality and hidden inflation. This situation is exemplified by the many Chinese officials caught with huge sums of money.”

Guo Jun, editor-in-chief of The Epoch Times Hong Kong edition, added that quantitative easing in China results in only about 5 percent of funds reaching the private sector, with the remainder bolstering state-owned entities, further straining the economic disparity between the state and the populace.

“So in terms of quantitative easing, Western countries are giving money to the people, while China is giving money to the government itself. That is a significant difference,” Ms. Guo said.

The Shifting Relationship Between Gold and the Dollar

According to Mr. Xie, the global economic structure and political structure are undergoing great changes. New trade blocs, national security, and military alliances are being formed. The old post-World War II international political and economic pattern is breaking down, but the new pattern is not yet fully finalized.

“We are truly living in a turbulent time,” he said, adding that as a result of these major changes, traditional relationships between the U.S. dollar and gold are also shifting.

The relationship between the U.S. dollar and gold is often characterized as inverse, meaning that the two tend to move in opposite directions. This inverse relationship stems from the unique properties of both assets. Gold, with its limited supply and historical role as a store of value, is often seen as a haven during periods of economic uncertainty or geopolitical turmoil. In contrast, the U.S. dollar, as the world’s leading reserve currency, is closely tied to the strength of the U.S. economy.

“Generally speaking, when the U.S. economy is strong, when exports are strong, when the U.S. dollar is strong, investors won’t buy gold, they will buy U.S. dollars or U.S. dollar assets. So, when the U.S. dollar assets or the U.S. dollar is strong, gold is generally on the low side,” Mr. Xie said.

The problem today, in his opinion, is that although the dollar is strong, the purchasing power of the dollar has been weakened by inflation and excessive borrowing, debt, and spending on the part of the U.S. government. Nonetheless, he said, “the euro may be even worse, because in addition to printing more money and leftist economic policies, there is also the factor of the Russian-Ukrainian war, which has had the greatest impact on Germany and France.”

Further, he said, “China’s economy is in recession, with both imports and exports falling, so the Renminbi is weakening against the U.S. dollar.”

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