Monday, August 8, 2011

Monday Post #5: Did China just issue the Federal Reserve a warning?

Update (11:18 pm PDT): DOW futures recovering, now +/- 0.00. Analysts expect huge opportunity to play rebound in morning.

Excessive expansion of the money supply leads to loss of confidence in that currency.

All eyes are on Ben Bernanke and the US Federal Reserve in the morning tomorrow  as worldwide collapse.

Yesterday Yu Yongding, a former member of the Monetary Policy committee of the Chinese Central Bank, came out and spoke about the US debt situation and said that it...
  • "is ultimately unsustainable. The longer it continues, the more violent and destructive the final adjustment will be.... The danger for China is that it does not learn the right lesson - namely, that now is the time to end its dependency on the US dollar."
In his statement Yu asks a very important rhetorical question:
  • "What losses is China willing to bear in its foreign exchange reserves in order to slow the pace of the renminbi appreciation?"
This is significant because if China announces it is freely floating the renminbi, it will trigger sheer chaos and market panic as confidence is lost in the US dollar.

With that in mind, did China just threaten the United States with just that action if Bernanke announces more money printing tomorrow?

Chinese inflation results announced earlier tonight show that Chinese inflation is even hotter than expected, (see this zero hedge post). This has prompted Peoples Bank of Chiina advisor  isor Xia Bin to say that China doesn't rule out  "normal market operations" to promote its own interested when necessary amid the US debt turmoil.
  • "China should set up an overseas investment committee to accelerate the strategic use of foreign exchange. This committee should organize storage of strategic materials. The country should allow and encourage companies to purchase foreign exchanges with the yuan."

What does this mean?

China cannot do this without floating the Yuan.

(Note: The distinction between yuan and Renminbi [RMB] is analogous to that between the pound and sterling; the pound [yuan] is the unit of account while sterling [renminbi] is the actual currency.)

I do believe a warning shot has just been fired across the bow of the Federal Reserve.

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1 comment:

  1. Good. I hope China DUMPS their treasuries. Enjoy your 30% unemployment China. I'm sure it won't take long to see "regime change" there.

    China is stockpiling treasuries to maintain their trade surplus and investment-based growth model. Last I checked, that model was OPPRESSIVE and UNSUSTAINABLE. Beijing house prices at 22x income, or 30x, or is it 60x now? Massively negative real interest rates for savers. Massive inflation. Massive malinvestment and waste. Massive corruption and insider dealing. Massive environmental destruction.

    Please, if China would just stop buying treasuries and blow sky fucking high, maybe we could start building a new world economy that helps people improve their lives as opposed to giving them no fucking hope. China is the biggest bubble in the history of the world, bar none, and for them to lecture the United States is absurd.