Makes sense. I don't know the 'balance of trade' betwixt the two, but if the US is say a net importer from the EU, then it is also a net importer of the EU's deflation.Strong Eagle wrote:All of this interest rate cutting means there is no way the USA is going to raise rates. There is no need to. There is so much money chasing investments and such turmoil in the currency markets that the US dollar is a safe haven even if it is paying nothing. Why would the US increase its debt service costs when it doesn't have to?
Bank of America Merrill Lynch Global Research warns in a new report that it sees a “non-negligible” risk that China’s government will surprise the market by slashing the value of its currency.
To reach this conclusion requires not just a hard-nosed appraisal of China’s economic numbers, but also to consider the unthinkable, namely that Beijing might actually lose control of the situation.
Comments over the weekend by Guan Tao, head of international payments at the State Administration of Foreign Exchange, suggest Zhou's ability to ease may rapidly be evaporating. The problem? Fast-rising "uncertainty and instability" for capital shifts -- conditions, Guan warns, that are eerily reminiscent of the 1997-1998 Asian financial crisis.
As China’s currency watchdog, SAFE normally operates under a cloud of secrecy. For Guan to speak out so publicly suggests there’s good reason to be worried about the kind of sudden and massive outflows that flattened Indonesia, South Korea and Thailand nearly two decades ago.
Today, China can't boost exports by letting the yuan fall, for fear that untold numbers of foreign-currency deals might unravel. What really worries investors about Kaisa Group, a previously little-known property developer that missed a coupon payment last month, is that no one knows how many other developers may default if the yuan weakens. While the Bank for International Settlements estimates Chinese companies owe about $1.1 trillion, neither Zhou nor Chinese President Xi Jinping know for sure.
For all Xi's talk of epochal change, today's China finds itself much where Asia did in 1997 -- dependent on exports and excessive borrowing, and at the mercy of markets that have no trouble seeing through government spin.
Managed currency pegs seem to have a tendency to end in catastrophe. I suppose secrecy, autocracy, or other forms of top-down semi-democracy (example: the Euro-zone), are not long-term viable bed-fellows. Because at some point the global economy will make that domestic arrangement barely viable, and/or the markets will en masse form something akin to a wolf-pack, and collectively seek to profit from the purely artificial and usually theoretically-based construct being broken. In a country or diverse region, where the 'rulers' are not nimble enough to adjust political/economic frameworks, as and when might be required, doom seems to inevitably loom (lol!)Wd40 wrote:As China’s currency watchdog, SAFE normally operates under a cloud of secrecy.
[guessing]Strong Eagle wrote:I'm having to rethink my question. Perhaps those more knowledgeable than I can chime in. China holds a vast number of US dollars in reserve... we keep sending them over to China to buy their stuff.
In turn, China has invested those excess dollars into US Treasury debt, aka, Treasury bonds. They send the dollars back to the USA in exchange for a note.
So... does the devaluation of the Yuan make any difference with respect to China's investment in US Treasury bonds? US dollars in, US dollars paid in interest, US dollars redeem the bonds... am I missing something here?
I dont think falling Yuan makes any difference to their US Treasury holdings.Strong Eagle wrote:I'm having to rethink my question. Perhaps those more knowledgeable than I can chime in. China holds a vast number of US dollars in reserve... we keep sending them over to China to buy their stuff.
In turn, China has invested those excess dollars into US Treasury debt, aka, Treasury bonds. They send the dollars back to the USA in exchange for a note.
So... does the devaluation of the Yuan make any difference with respect to China's investment in US Treasury bonds? US dollars in, US dollars paid in interest, US dollars redeem the bonds... am I missing something here?
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