PBOC hits impossible trinity brick wall – MacroBusiness

From David Llewellyn-Smith:

….China is up against the “impossible trinity” here, that a country cannot control floating interest rates, the currency and capital flows all at once.

Like its ad hoc capital controls, I expect that liquidity injections will prove inadequate after a while and the PBOC will be forced to ease again. And if it has any brains it’ll know that. This is about spreading the pain over a manageable period of time – the glide slope as I call it – not preventing the adjustment from happening. The alternative of no easing and a supported yuan will simply bring on the hard landing all the quicker.

It’s called the impossible trinity for a reason.

It really comes down to common sense: there are no free lunches. One of the most frequently overlooked rules in macroeconomics.

Source: PBOC hits impossible trinity brick wall – MacroBusiness

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