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 ...
The yuan will never be traded fairly as the artificial pricing is what allows the CCP to keep the export economy going. Without it, they would actually have to compete not only on price of goods, but also start paying their populace real wages.
I have lots of relatives in China (in laws), so this subject is close to home for me.
I lived in China 5 years and in Hong Kong for 12.
P!
This is the reason tariffs are not needed. Governments that financially support exports eventually run out of money. During all that time, Americans enjoyed subsidized products, resulting in a higher standard of living.
In reality, there is no such thing as a trade imbalance. When there is an exchange of money for products that are subsidized by foreign governments, there is an actual gain for the purchaser.
Why not print some money, that is what the US does courtesy of the “federal reserve”—not federal and not reserve....a private bank.
” During all that time, Americans enjoyed subsidized products, resulting in a higher standard of living.”
other than all of the Americans who lost their manufacturing jobs and have lived much poorer lives.
So....Is China now going to recall all of its loans to the US?
What about all the gold they have been buying up the last few years? is that pumping or is it real?
I'm curious, what is your take on all this? What do you think will happen to our DJIA and our dollar if China floats the yuan. I'm thinking now is a good time to buy some raw silver, such as 1 oz American silver eagles, 1 oz Canadian silver mapleleafs or 1 oz Silver Mexican Libertads? I don't see gold doing much but I like the long term on silver.
the dollar is the worlds reserve currency, hence the fed can print more money and get away with it. Chinas central bank does not have that option
Japan is doing it with short-turn success; why can't the Chinese? They are all playing race to the bottom.
Exactly. Some say that the Soviet Union was just a monopoly capitalist economy. The free traders love to say there should be no laws against monopolies because the market will destroy them over time.
Of course tens of millions of people were also destroyed between 1917 and 1989, but the market won in the end. Didn't it?
Chinese propaganda
“if capital outflows maintain their current pace, the PBoC would be unable to defend the yuan for more than two to three quarters”
That is a big if - capital flight has been accelerating. More draconian capital controls may be on the way (like Greece last year).
A big difference between China and Greece, or Argentina, is that there is no much larger EU or USA to bail them out.
I think that may be why the IMF recently (Nov 2015) decided to add the Chinese currency to their basket of reserve currencies (SDR) - so they could shuffle the cards, offload some of the losses and subsidize credit to China when their currency tanks.
The article talks about a 15% devaluation of the yuan in the next six months. That is the orderly adjustment, that financiers have been discussing. There is risk that the process could get out of control however, and the currency could dive much lower.
The bottom line is that the government does not have unlimited foreign exchange reserves to keep spending them to support their currency. If they run out of reserves, they could see their currency crash in a disorderly, unpredictable fashion.
Reserves don’t have to fall to zero before that happens - China needs to have more than a trillion dollars worth of foreign exchange reserves just to settle then next few months of import transactions (e.g. food - remember the food rotting in Greek ports, when they could not arrange payments). Other cash requirements get squeezed as the reserve balance drops toward that hard requirement, and lots of players race for the exits with their money as they see such possibilities approaching.
So it looks like they plan a 15% devaluation. If that doesn’t stabilize the currency, then they are at risk of not having enough reserves to control the decline the next time - Katie bar the door.
Your post is true as far as it goes. Unfortunately a low wage region like Asia can decimate the industrial base of another country. You get cheap consumer goods in terms of currency. However you pay for them in the form of jobs.
It is always a good time to buy the silver coins you talk about. There is no counter party risk or debt attached to these coins. They are one ounce of pure silver and, unlike paper currency, they have intrinsic value.
The big question is, for how much longer?
Define "higher standard of living". I would most happy w/o 90% of the stuff/junk that we have replaced humanity with.
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