exactly. they are exchanging goods for paper that they cant use. japan did the same thing. then they came over here and bought expensive property that they later sold back to us for a fraction of what they paid.they have to eventually buy something from us to get rid of all the dollars. that may explain the bond rally earlier this year.
China doesn't want to float it's currency because it has the same banking problem that Japan had in the late 80's and doesn't want to risk destabilizing their banks until the balance sheets of those banks can be repaired. China will most certainly dump a shitload of U.S. Treasury notes & bonds on our market in retaliation to any tariffs as they have threatened, which would cause our interest rates to soar and thump our economy. Retaliation through tariffs, embargoes and currency manipulation are characteristics of the back side of a global market bubble.
The PRC (China) is accumulating foreign reserves in order to eventually recapitalize its entire banking system, which is currently bankrupt. Essentially, floating the RMB now would leave China's banking system to fend for itself and THEN you would have something of a Japan Redux. This is why the US isn't asking for and doesn't want a near-term complete float of the RMB - a Chinese countryside in chaotic revolt is good for nobody. The US administration knows this, and the Chinese know they know this, already. Snow's recent trip to China to press for a gradual relaxation of RMB exchange rates was more election politics than anything else - playing to the unions at home that yes, the admin does care about manufacturing jobs in addition to the war on terror.
My bet is that China goes bust before it really starts to boom. The book-cooking that's going on there would make the Enron scandal look like kids play.
The people running China right now are a lot more savy than most give them credit for. They are fully aware of the risks - and on develping their economy, have the full support of the world, most importantly the US. There is tremendous volatility on the horizon for China and China-related markets, but I would bet that the China story will produce the largest equity bubble the world has seen to date. Within the next twenty years, I have no doubt we will see an enormous bubble in China assets. Look for some real upside momentum around the 2008 summer Olympics. I don't make a lot of recommendations, but will make this one: If China-related securities are cratering around Jan-Feb due to SARS outbreak, put your mothers and grandmother's retirement money into China stocks for the ride of a millenium.
stupid how do you guy think asian country are keeping there ccy pegged to he greenback ? =>>> buying treasuries ! neither bush nor Snow are serious about this (i hope) they jts want to send a message to the rednecks down in midwest if they are however they can kiss the US economy good bye : just think about it : since last year not only the US economy as a whole is running deficit of payments but so does also each of it's components (private consumer&gov't) so don't tell they can float the boat no matter where the interest rates are down the road asia's currency war is a favor to the US. they've created an economic state in whish asian economies are addicted to exporting to the US. removing this addiction will create short term pressure, on the long run it'll shift economic hegemony on the other side of the pacific and reflat US's net saving balance if bush is serious about what he said sept1st then believe he disserves a statue in each asian capital.
Fair Trade is only FAIR when the value of currency is floated in the free market. If you do not float the currency then you are effectively subsidizing your industry and placing tariffs on incoming goods. - Greg
I think this is a great recommendation. Certainly there are all the ingrediients for another bubble. I don't really see how the dynamics of this imbalance can continue forever. We run a huge trade deficit, which the chinese finance by buying treasuries, which in turn keeps a lid on their currency. At some point this has to crater and when it does, there will be fortunes made shorting the dollar and bonds.