Tuesday, November 9, 2010

I am sinking

USD - CNY = 6.67 approx.
China is still an export driven economy (with a very dirty underbelly of useless capital assets of businesses already kaput)
If the Yuan is allowed to appreciate, (in addition to wage increases and inflation) the guys still existing are going to be on the brink.
Any way for them to escape such a situation?
Short term - use contracts on the exchange rate which, in China, should only be through the banks.
Long term - consume more than export, export something more valuable
Short term - Seeing the currency imbalance, companies move to other economies for exports.

Is the appreciation avoidable?
The US is deliberately weakening its currency, China is accumulating reserves at a phenomenal pace and if the People's Bank of China decides to not sterilize inflows, inflation in China will be uncontrollable.
Of course, the market will pre-empt such moves and move monies accordingly.

Um... Gold? Silver? Oil? Emerging Market equities? US treasuries?

The chain is very convoluted...

China is buying JGBs making the Japanese angry with an appreciating JPY.
China is currently importing a large amount of commodities (Mao or God knows what they are doing with those imports) thereby supporting the large commodity exporters such as Canada and Australia...

Could China be secretly hoarding commodities in order to gain control the way it does have control on the rare earth commodities?
Could they be playing a very sincere and serious game in order to topple the US?
If so, wouldn't the US already know?

Something is very messy...

People have again started speaking about Portugal, Greece and Ireland - wait till they start speaking about UK and France.
Wait till Germany says 'to hell with you - I'm going back to my Deutsche marks'.
Wait till an emerging economy puts severe restrictions on foreign capital inflows

O! Did I hear that Iran just started loading fuel into its Bushehr nuclear power plant?? O wait ... it's just a power plant.
Did I hear that North and South Korea exchanged small gunfire a while ago?

As zay Germans say... I am sinking!

P.S. And on the issue of relieving markets of liquidity support, a very well functioning economy (relatively speaking of course) - Sweden - has been experiencing issues.

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