“If spending an amount equal to half of the world’s second largest GDP to buy up foreign currencies is not currency manipulation, then what is?”
Martin Wolf, Financial Times
The perils of Chicago
Many moons ago, long before I joined Goldman Sachs, a London based employee of the firm went to Chicago to attend a seminar on options and futures. This goes back to the 1970s when proper men still wore hats, and our friend was indeed proper, so he showed up in Chicago in full British-style attire, including his beloved woollen hat. Lo and behold, Chicago can be a very windy place and, shortly after arriving in the Windy City, his hat blew off and was completely flattened by a passing car.
Our friend thought it reasonable that Goldman reimbursed him for his loss so, after having acquired a new hat, the cost found its way to the expense report, which he submitted on his return to London. In those days Goldman was quite a small firm, and expenses were controlled with an iron fist by one very senior person in New York, who shall remain unnamed. When he saw the expense report, he went ballistic and immediately demanded for our friend to re-submit his expenses, this time without the hat.
Now, our friend was not giving in that easily. He was truly upset about the loss and only found it fair that Goldman compensated him, so he re-arranged his expenses, with the total adding up to the exact same amount, but the hat had mysteriously disappeared. Then he wrote in big fat letters across the expense report: “Find the Hat!”
For reference only
Fast forward to China anno 2011. I suspect there is not one but many hats hidden in the national accounts of China and, thanks to Wikileaks, we now have a very public figure admitting as much. In a leaked 2007 cable Li Keqiang, who is the favourite to become the next premier, confided that official Chinese GDP figures are “man made” and “for reference only” (surprise, surprise), and that one should rather look at alternative measures such as electricity consumption, rail freight volumes and bank lending, if one wants a true picture of economic growth in China[1].
So let’s do precisely that. In chart 1 below I have plotted Chinese GDP growth against the electricity output over…
