So much good information comes out in the week before the annual meetings …

That makes it hard to decide what to read.

Reserve geeks, though, should pick up the Mohanty/ Turner and Wooldridge papers in the latest BIS quarterly.     Hat tip, the New Economist. 

They don’t solve the biggest puzzle in the world though – how China has been able to accumulate so many reserves without a surge in inflation.  Turner and Mohanty are as surprised as anyone ….   

True, the rapid money growth associated with unsterilized (or partially sterilized) intervention has led to inflation and a significant real appreciation in Russia, Venezuela and Argentina.  But not in China. 

And Wooldridge explains precisely how little we really know about China’s reserves.   It turns out that China – unlike India and Russia – doesn’t have large deposits in the international banking system.   Most of its reserves are invested in securities.  Yet the US data doesn’t consistently seem to pick up all Chinese purchases.  We are all left guessing about one of the biggest players in global markets.

The surge in central bank deposits in the international banking system though, supports one of my themes – the fall-off in recorded central bank inflows to the US isn’t real.  Those dollar deposits in international banks are lent out to folks wanting to buy US securities …   they still (indirectly) help to the finance the US. 

And the UK – it now seems fairly clear that central banks finance as large a share of the UK’s current account deficit as of the US current account deficit. 

That may be the true (current) definition of an Anglo-saxon economy.  Forget labor market flexibility.  Talk instead about dependence on central bank financing.  And efficient intermediation between central bank demand for reserves and the local housing market …