Posted on 02/04/2016 8:39:07 PM PST by Zhang Fei
China is burning through its foreign-currency reserves at such a blistering pace that the country will run down its cushion in a few months, forcing the government to wave the white flag and float the yuan, says Societe Generale global strategist Albert Edwards.
"The market remains content that massive firepower remains to support the renminbi. It does not," Edwards, a perma-bear with a propensity for doom-and gloom-prognoses, said in a report published Thursday.
Societe Generale, using the International Monetary Fund's rule of thumb on reserve adequacy, estimates that China's foreign-currency reserves are at 118% of the recommended level. But that cushion is likely to evaporate soon on a combination of capital flight and the continuing effort by financial authorities to stem a dramatic drop in the currency.
(Excerpt) Read more at marketwatch.com ...
Define "higher standard of living". I would most happy w/o 90% of the stuff/junk that we have replaced humanity with.
http://www.freerepublic.com/focus/f-chat/3393119/posts
Official reports over the last couple years have pegged China’s foreign reserves at roughly 3.2 TRILLION dollars.
I’ve seen burn rates for the last year or two of anywhere from 200-400 billion dollars.
At those rates China has a 10 year plus cushion to right their economic ship.
The ones who are in greater danger are the Saudis who have something over 600 billion in reserves. Their burn rate is something like 50 billion annually. But even there, they have a 10 year cushion.
The Russians have around 400 billion in reserves with a burn rate of around 50 billion annually.
All of these people expect the current difficulties to end in 2016 or 2017 at the latest.
Do you see this affecting DJIA over the next months - in a bigger negative way then most think? I know you don’t have a crystal ball, but where would you guess the DJIA will be in four months - 1400 ??? I sure hope not lower!
I can see that Saudi and Russia can get out of their economic trouble if they engineer the oil price hike, which is within their ability to pull off. On the other hand, China has deep structural problems. Their currency woe is only a symptom. They also developed political instability. The collective leadership via Politburo’s Standing Committee is over. Xi purged multiple political factions and amassed near absolute power. On the surface, Xi seems unchallengeable but his political adversaries will not be going quietly.
I do not begrudge my local dealer his premium. I want him to make money. I want him to stay in business. I would encourage everyone to buy and sell from their local dealer. I want silver to become more common to settle accounts.
Another advantage of silver coins, at least where I buy them. It is a cash transaction. No records, no taxes, no ID required, no limits, cash and carry.
Hmm. This article is more an argument for further devaluations of the yuan — because the the chinese will have to let the yuan float or devalue it by fiat — rather than spend 100’s of billions monthly to protect the dollar peg.
That's very peculiar because just two weeks ago my friend who owns a huge numimatic business here, told me that every transaction now - the buyer Must give his drivers license so the dealer can have that on file if the IRS wants to come in and check his paperwork for those who are buying gold or silver. This law went into affect about 5 years ago I believe. The IRS wants to make sure they get a piece of any profits you might make when you sell.
My friend has never had me put my drivers license on our deals, and in fact, I never had paperwork with him. lol But now, he says those days, with him at least, are over. So, if you have a coin dealer guy who won't require paperwork and drivers license, keep going there!! Maybe the smaller coin dealers will risk all cash, but my friend won't risk doing that anymore. Of course, everyone should obey the current laws and let the IRS know what you're buying. (oh sure,right!!!)
Do take a moment to read my post #10 at the link below. Perhaps it might help you with some key knowlege about the numismatic trade.
My dealer friend told me that if any coin business /numismatic business is caught having paperwork with no drivers license - that the IRS can - freeze up all of their bank accts. and keep them frozen until their investigations are over and the dealer might end up in federal prison. So, this is why my dealer friend - after 35 years of me dealing with him- now is making everyone hand over their drivers license.
http://www.freerepublic.com/focus/f-chat/3393119/posts
No taxes, cash and carry, no records, no limits, NO IRS.
Isn't (limited) freedom great?
renminbi? They should just call it the Mao.
#3 You must like Chinese food : )
Check your freepmail.
China can’t recall its loans but it can stop purchasing new US debt.
“I’ve seen burn rates for the last year or two of anywhere from 200-400 billion dollars.
At those rates China has a 10 year plus cushion to right their economic ship.”
Last year, China’s foreign exchange reserves took a sharp turn - up in the first half, down in the second. The annual average doesn’t well reflect the growing monthly burn rate since the August 2015 Chinese stock market crash.
As of January 2016, their monthly burn rate was over $140 billion a month, and growing month over month, as they try to prop up both their currency and stock markets.
Also, things start breaking well before foreign reserves hit zero. The hard floor is actually over a trillion dollars, which is needed just to settle the next few months worth of imports (food, fuel, commodities), but other cash needs get squeezed before they get there, like propping up their banking system (which has world-class amounts of bad loans on their books).
Things depend a good bit on how the burn rate changes over this year. If it accelerates all year, they will reach limits where they have to allow either their currency to collapse, their stock markets to crash, or both.
Worst case - they hit the skids hard this year with currency collapse, stock market crash, and a big economic contraction producing high unemployment.
Best case, they squeak through this year, and the global economy picks up next year, raising their boat along with the tide.
If market pressure eases and they can reduce their burn rate, or if they choose to sacrifice one priority for the other (e.g. a proposed 15% currency devaluation in the next few months, or letting the stock market tank), then they will be able to slow or halt their burn rate, and possibly kick the can down the road longer.
Their banking system is really insolvent with bad and fraudulent loans, but the government is unlikely to ever formally admit that or allow appropriate bankruptcies - they are likely to print money to keep their banks open.
Capital flight is putting a lot of pressure on their currency, as companies and rich people are trying to sell Chinese denominated assets and accounts to buy overseas assets and accounts. People are voting with their feet. There is a pretty profound loss of confidence in the prospects for the Chinese economy, and the honesty of their accounting.
Future developments, whether market or government policies (even those intended to stem the outflow), could result in a stampede for the exits, which might precipitate a currency crisis (which in turn could trigger other crises, like depleting reserves, stock market crashes, severe recession, etc.)
China is really at risk this year and next. The magnitude of the adjustments needed to bring their accounting and their economy into real balance dwarfs the size of their foreign reserves. They can only hope to spread it over many years (or generations). If conditions force a reckoning on them, it will be wrenching.
I did. Thank you and I replied. In that mail I just sent to you I put in a question about your new liberal guy Trudeau.
“Do you see this affecting DJIA over the next months”
It depends on how things turn out. Big downturns on Chinese stock markets generally drag the other stock markets around the world down with them that day, but they move much more independently over longer timeframes (weeks and months).
Most of the money on Chinese stock markets is unlikely to flee to US stock markets - it is a lot of state-owned companies and small Chinese investors who lack access to foreign markets.
If the Chinese economy really tanks, rather than just their stock markets and/or currency, then that will be a real drag on the global economy - a negative for US stock markets, but objectively not a killer. Some Chinese downturn is already priced into the US market prices. Sentiment could of course overreact to a sudden Chinese downturn, dragging US markets down more than justified in the short term.
So I would guess that China is more likely to be a negative rather than a positive for US markets, and more likely to be a small effect than a large one.
It's expensive for countries to re- industrialize after all these years, but the US will do it and be better for it.
We can print money because we’re a reserve currency... they’re not and they can’t...
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