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In Advance Of G-20 Meeting, China Announces Dollar Peg To End

Tyler Durden's picture





 

In a statement posted on the PBOC's website late last night, the Chinese central bank has announced it will seek a flexible yuan, ending a two-year peg to the dollar. The news comes a week before the G-20 meeting at which the CNY exchange rate was set to be a key issue of debate. On the other hand, as the PBoC noted, With the BOP account moving closer to equilibrium, the basis for
large-scale appreciation of the RMB exchange rate does not exist." As such, a large initial move is unlikely to occur, and the bulk of the volatility will likely strike at traded CNY forwards.

Full statement:

Further Reform the RMB Exchange Rate Regime and Enhance the RMB Exchange Rate Flexibility
 
In view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the People´s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.

Starting from July 21, 2005, China has moved into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. Since then, the reform of the RMB exchange rate regime has been making steady progress, producing the anticipated results and playing a positive role.

When the current round of international financial crisis was at its worst, the exchange rate of a number of sovereign currencies to the U.S. dollar depreciated by varying margins. The stability of the RMB exchange rate has played an important role in mitigating the crisis´ impact, contributing significantly to Asian and global recovery, and demonstrating China´s efforts in promoting global rebalancing.

The global economy is gradually recovering. The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability. It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility.

In further proceeding with reform of the RMB exchange rate regime, continued emphasis would be placed to reflecting market supply and demand with reference to a basket of currencies. The exchange rate floating bands will remain the same as previously announced in the inter-bank foreign exchange market.

Chinas external trade is steadily becoming more balanced. The ratio of current account surplus to GDP, after a notable reduction in 2009, has been declining since the beginning of 2010. With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist. The People´s Bank of China will further enable market to play a fundamental role in resource allocation, promote a more balanced BOP account, maintain the RMB exchange rate basically stable at an adaptive and equilibrium level, and achieve the macroeconomic and financial stability in China.
 
Submit Date:2010-6-19 19:00:00

Tim Geithner immediately responded to the development: “We welcome China’s decision to increase the flexibility
of its exchange rate. Vigorous implementation would make a positive contribution to strong and
balanced global growth. We look forward to continuing our work with
China in the G-20 and bilaterally to strengthen the recovery.”

The move will likely have substantial negative developments to various sectors of the Chinese economy:

Companies focused on the Chinese market, including Beijing- based computer maker Lenovo Group Ltd. and Shanghai-based China Eastern Airlines Corp., said in March that they would gain from lower import costs and stronger consumer-purchasing power should the yuan appreciate. Textiles makers would stand to lose the most and some would “face bankruptcy” as their profit margins are as low as 3 percent, Zhang Wei, vice chairman of the China Council for the Promotion of International Trade, said in March.

Of course, in a recreation of the aftermath of the US credit bubble, the biggest losers will be private lenders, straddled with trillions in ever more worthless real estate loans, which will suddenly now become an even greater drag, due to a stronger currency. What this means, is that the rolling wave of QE will soon hit China next, after the US and Europe. Which makes sense: China's central bank is not saddled with the same gargantuan amounts of bad debts as the Fed, and soon, the ECB, which makes it a convenient last receptacle of toxic waste in exchange for one last attempt at a global liquidity pump. This will likely buy Keynesianism a little more time. In the meantime, we once again highlight the relationship between the CNY and the Chinese 30 Day Repo Rate. With this number having hit near record highs, courtesy of a recent move lower in the CNY, it only seemed inevitable that China would be forced to unlock its own interbank lending market in whatever way it could.

The question now becomes what will the aftermath of this announcement be? As the FT points out, investors are likely to read into it a little more than prudent:

“The danger is that on Monday morning everyone gets very excited and then end up being disappointed with what happens. There is very little appetite for appreciation, so in the short-term the central bank is likely to be very conservative,” said Stephen Green, an economist at Standard Chartered. “As a result, the US-China relationship could still be very tricky.”

Lastly, with less dollar purchasing by the PBoC, and also courtesy of recent foreign trade deficits, should the bank be serious in its intentions, this simply means that increasingly fewer dollars will be held in the Chinese FX reserves, which in turn will mean increasingly lower Indirect bidder (and/or Direct assuming this particular category is merely China acting covertly out of London, instead of just the Fed monetizing surreptitiously) interest will drop to the point where Primary Dealers (and UK) will be the only end purchasers of US bonds.

Either way, this is sure to play major havoc with already extremely volatile EUR, CHF, GBP and JPY pairs.

 


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Sat, 06/19/2010 - 12:12 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

All talk to take the heat off before the G20, then they will just go back to the merchantilist ways.

This story belongs in the file with the $1T of supposed minerals in Afghanistan - pure bullshit.

Sat, 06/19/2010 - 12:48 | Link to Comment thesapein
thesapein's picture

It was just a matter of time. The peg could only protect the dollar for so long.

Sat, 06/19/2010 - 12:50 | Link to Comment taraxias
taraxias's picture

Spot on.

Read the press release, nothing more than a "non-committal committal" just before the G20 meeting.

Sat, 06/19/2010 - 17:07 | Link to Comment chinaguy
chinaguy's picture

Agreed  GFI...They will let it float a small bit to knock back inflation a tad (inflation is BAD in China now) & get the US off it's back and then it's back to business as usual.

Sun, 06/20/2010 - 09:49 | Link to Comment doublethink
doublethink's picture

 

History Rymes

 

(Reuters) - The U.S. Treasury market may be vulnerable to a sell-off on Monday on fear that China's move to allow more flexibility for its currency means the world's largest holder of U.S. sovereign debt will cut future purchases.

 

http://www.reuters.com/article/idUSTRE65I2Z420100619?type=ousivMolt

 

Sat, 06/19/2010 - 12:16 | Link to Comment dnarby
dnarby's picture

Hmm...

Everyone is expecting the Yuan to rise.  This will theoretically help US exports.  Time to gun stocks!

...Except that when the Yuan is floated, it will likely sink instead.

In the process, the Chinese continue to trade their Yuan for gold ahead of the "Great Reset".

Sat, 06/19/2010 - 13:02 | Link to Comment thesapein
thesapein's picture

Well, if the yuan sinks, then the value of our debt to China skyrockets! That is the worst case scenario according to Ben and Tim, no?

Sat, 06/19/2010 - 13:51 | Link to Comment dnarby
dnarby's picture

Yes.  Race to the bottom ^10^10

Sat, 06/19/2010 - 13:11 | Link to Comment thesapein
thesapein's picture

The whole killing our dollar and destroying our purchasing power in order to theoretically help exports never made much sense to me. It's like, let's be so poor that others can buy more from us. Why are we so excited about taking our turn as a poor nation?

Sat, 06/19/2010 - 14:47 | Link to Comment dnarby
dnarby's picture

Because in order too keep the global fiat "growth" machine running, a 'hard' currency nation had to debase it's currency.  That was the US.  That run is over.

Now they're going to try some other scheme.  Problem is, they don't have the guns to bully the rest of the world to go with it.  The majority of nations will agree on a new reserve currency to measure all others against (and the ones that don't will be forced to follow), it's just that it won't be used directly to settle payments for goods and services.

I am intentionally being vague so to get people to think "Hmm...  What could that currency possibly be?"

Sat, 06/19/2010 - 16:07 | Link to Comment thesapein
thesapein's picture

Well, one thing never changes; Gold has pretty much always been the one world currency. So, even as people try to prop up any new ones, gold will most likely be the one always left standing. Does that about answer your question?

Sat, 06/19/2010 - 20:44 | Link to Comment dnarby
dnarby's picture

...Shh!

Sat, 06/19/2010 - 16:13 | Link to Comment nuinut
nuinut's picture

Hmmm..... well it would need to be a currency that was free to float, for a start.

Sat, 06/19/2010 - 20:51 | Link to Comment dnarby
dnarby's picture

I find it fascinating how the Gulf sea floor is mimicking the world monetary systems.

Sat, 06/19/2010 - 21:16 | Link to Comment Apostate
Apostate's picture

The unconscious is the most powerful force in the human mind. The consonance of the gusher in the Gulf has great resonance. 

Sun, 06/20/2010 - 01:32 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Very resonant comment Apostate-ji.

Like a Hummmmmmmmmmmmm....

And now that they are saying it is radioactive AND full of Methane, I think we are in runaway reaction mode.

All things will go belly up, which is where we started anyways, so, all good, eh?

ORI

http://aadivaahan.wordpress.com

Mon, 06/21/2010 - 09:29 | Link to Comment fearsomepirate
fearsomepirate's picture

It's based on sort of a clumsy theory of "exports = good" and "imports = bad."  Thus exports are a positive term in the GDP equation, and imports are a negative term.  So increasing exports = increasing GDP = good.  But what is going on substantially (cutting out the Keynesian aggregation bullcrap) is simply that increased exports mean real wealth is leaving the country; in short, we're paying for decades of importing, not getting richer.  Inflation also disguises losses as profits, since businesses don't account for currency depreciation in their book-keeping.  Say I make a widget for $100 at the beginning of the year and sell it for $110.  I record a $10 profit.  But if the currency depreciated by 15% in that time, that $110 is $93.70 in last year's money.  I *really* lost $7.50.  But my books don't tell me that, so I keep plowing on ahead, losing more and more wealth until all my capital is gone and I go bankrupt.

Sat, 06/19/2010 - 16:05 | Link to Comment tmosley
tmosley's picture

Think about what you are saying, and HOW the Chinese maintain their dollar peg.

Their government buys ALL the dollars that come in, and prints yuan according to their peg and hands them back those same Yuan. How exactly is a cessation of money printing going to cause their currency to lose value?

Further, how is their government going to keep getting dollars to US treasuries?

Mon, 06/21/2010 - 09:31 | Link to Comment fearsomepirate
fearsomepirate's picture

The most important question is, "And who is going to buy US Treasuries?"

 

Bueller?  Bueller?

Sat, 06/19/2010 - 12:16 | Link to Comment Trimmed Hedge
Trimmed Hedge's picture

I just came back from China.

They are kicking our asses over there!

Sat, 06/19/2010 - 12:19 | Link to Comment MsCreant
MsCreant's picture

What? Making bad loans? Building buildings no one needs? Blowing a real estate bubble? Appointing short little trolls to their treasury/fed? Striking?

Be specific regarding how they are kicking our asses.

Sat, 06/19/2010 - 12:33 | Link to Comment Popo
Popo's picture

Well, see ...they can get their peasants to do a full day's work for nothing but a bowl of rice.

That kicks ass!

Sat, 06/19/2010 - 12:30 | Link to Comment thesapein
thesapein's picture

They just don't looks so bad because we are so much worse.

Sat, 06/19/2010 - 13:18 | Link to Comment TBT or not TBT
TBT or not TBT's picture

Your forgot to add:  growing old fast?  murdering female infants?  Being a murderous dictactorship?

Sun, 06/20/2010 - 00:35 | Link to Comment Bear
Bear's picture

They are so smart that they even own 1 trillion of our treasuries.

Mon, 06/21/2010 - 09:32 | Link to Comment fearsomepirate
fearsomepirate's picture

When your starting point is Maoism, switching to a backward, fascist, mixed economy is an infinity percent improvement.

Sat, 06/19/2010 - 12:29 | Link to Comment thesapein
thesapein's picture

I'm not impressed. Beating up a dying man who is already choking on his own vomit, doesn't make you superman. China just looks so great compared to us.

Sat, 06/19/2010 - 14:50 | Link to Comment dnarby
dnarby's picture

More like beating up on a brilliant and powerful person who is hobbled by a bad drinking problem...  But who is about to sober up.

The Chinese can't come up with an original idea to save their hive-mind souls.  Must be mercantilism is genetic.

Sat, 06/19/2010 - 16:12 | Link to Comment thesapein
thesapein's picture

Keep telling yourself that.

Right, lol, Americans are so original. We don't look like a hive from the inside.

Sat, 06/19/2010 - 20:14 | Link to Comment doggings
doggings's picture

The Chinese can't come up with an original idea to save their hive-mind souls.

honestly, how ignorant.  it actually reminds me of:

"what have the Romans ever done for us eh?"

er, the compass..  paper-making, paper, printing, fireworks, tea, kites,the fire lance, land mine, naval mine, hand cannon, exploding cannonballs, multistage rocket, and rocket bombs with aerodynamic wings and explosive payloads, coffins, bells, fermented beverages.

..oh, and paper money. 

http://en.wikipedia.org/wiki/List_of_Chinese_inventions

5000 years of history as opposed to what will be remembered as America's 15 minutes of fame ;)

 

 

Sat, 06/19/2010 - 21:17 | Link to Comment dnarby
dnarby's picture

Sorry, I forgot that the Chinese invented the printing press, calculus, the assembly line, radio wave communications, the telephone, the internal combustion engine, alternating current, electric motors, nuclear power, the transistor, integrated circuits, robotics, chaos theory, particle accelerators, communication & GPS satellites, space travel and teh Internets.

Seriously, can you name anything they have invented in the last 100 years?

...Bueller?

 

Sun, 06/20/2010 - 20:28 | Link to Comment thesapein
thesapein's picture

Name one thing you've invented in your entire life.

Mon, 06/21/2010 - 12:33 | Link to Comment doggings
doggings's picture

haha spoken like a true "patriot"

well they also wrote the definitive book on war

http://en.wikipedia.org/wiki/The_Art_of_War

seven thousand years before you sons of potato pickers even got to the Red Indian's land a mere blink-of-an-eye ago in what will become the annals of history

So I dont really think your bunch of cowboy muppets have much hope in the long run, economically, politically or military, they're out-strategising you daily. ;)

Mon, 06/21/2010 - 12:53 | Link to Comment doggings
doggings's picture

haha spoken like a true "patriot"

well they also wrote the definitive book on war

http://en.wikipedia.org/wiki/The_Art_of_War

edit 2 1/2 (doh) thousand years before your lot even got to the Red Indian's land a mere blink-of-an-eye ago in what will become the annals of history

So I dont really think your bunch of cowboy muppets have much hope in the long run, economically, politically or military, they're out-strategising you daily. ;)

Sun, 06/20/2010 - 16:55 | Link to Comment Gold...Bitches
Gold...Bitches's picture

Kites and Coffins? Kites and Coffins? Yes, its time to be afraid of the juggernaut that is China...

Sun, 06/20/2010 - 20:34 | Link to Comment thesapein
thesapein's picture

Actually, if you look at their newest art of war, which makes most of our navy obsolete, there is much to fear. An enemy that can take out your satellites (blind you) and sink your navy without even calling any soldiers to arms is maybe someone to fear.

Sat, 06/19/2010 - 12:20 | Link to Comment anony
anony's picture

I don't believe there is a government statement made for public consumption anywhere in this galaxy that has one scintilla of credibility.

The governments of the world are infested with humanoids missing a truthiness gene, and as a result are congenital liars, gypsies, tramps, and thieves.

In another universe they would all inhabit the ninth ring of hell.

Sat, 06/19/2010 - 13:52 | Link to Comment dabug
dabug's picture

Nothing wrong with Tramps or Gypsies, what are you a bigot? name calling is fun huh?

Sun, 06/20/2010 - 11:32 | Link to Comment Bam_Man
Bam_Man's picture

gypsies, tramps, and thieves

Thanks a lot.

Now I have to listen to Cher sing that inside my head for the rest of the day.

Sat, 06/19/2010 - 12:23 | Link to Comment LoneStarHog
LoneStarHog's picture

I see the Chinese masters are playing with their Little Tiny Tim speaking doll (Made in China).  They just love pulling the string that is stragetically placed up his ass to hear him say, "We welcome China’s decision to increase the flexibility of its exchange rate."

Makes America proud to have Little Tiny Tim as Secretary of the Treasury.

Sat, 06/19/2010 - 12:29 | Link to Comment Atomizer
Atomizer's picture

FSB

http://www.financialstabilityboard.org/

Avinash Persaud discusses the debate on financial regulation, the role and mandate of the Financial Stability Board ( FSB) and its relationship with the G20 at CIGI's Issues for 2010 Summits conference (May 2010). Avinash Persaud is the Chairman of Intelligence Capital Limited, which he established in 2005.

http://www.youtube.com/watch?v=kqnz-MjFtHY

Implementing the Europe 2020 Strategy: Key Next Steps
http://www.youtube.com/watch?v=k8vEfXnEa-o

Wake up peasants. Don't cry a river of tears once these changes are implemented.

Sat, 06/19/2010 - 14:01 | Link to Comment dnarby
dnarby's picture

I'm not sure what you took away, but it looks to me like Freegold is coming.

 

Sat, 06/19/2010 - 16:46 | Link to Comment breezer1
breezer1's picture

can't be stopped. will be a big jump also in silver.

Sat, 06/19/2010 - 12:41 | Link to Comment thesapein
thesapein's picture

About time.

Sat, 06/19/2010 - 12:44 | Link to Comment AnAnonymous
AnAnonymous's picture

China is taking risks there. As the peg might not deliver the expected result, they put themselves a target in their back.

Because what is it going to be next time? The US since the beginning has always blamed others. In the end, the US will tell that the problem is China.

Sat, 06/19/2010 - 13:24 | Link to Comment TBT or not TBT
TBT or not TBT's picture

In the end, China will not just know it has huge impending problems, it will be a miserable mess of unprecedented scale, and scale is about all that will differentiate it from previous historical collapses seen elsewhere in history.

Sat, 06/19/2010 - 16:35 | Link to Comment AnAnonymous
AnAnonymous's picture

The biggest problem for China at present times is the US. Today, China complies. And tomorrow, the US might come as well that due to their strengthened currency, China is consuming too much.

 

Looks like China is going to take the blame for the disastrous consequences of the US policy.

Sat, 06/19/2010 - 12:52 | Link to Comment Kali
Kali's picture

China's powerhouse was its cheap labor, now threatened.  It seems the workers are not willing to carry that load anymore.  One of the most interesting items I find is what is stated in the Guardian article, the workers are organizing on their own, outside of the Unions and the Party.

www.guardian.co.uk/world/2010/jun/17/china-strikes-economy

China powerbrokers fear the masses as much as the powerbrokers do here in the US or Europe.

I cannot find the link for my next statement, it was from a couple years ago (?).  It was an interesting tidbit, that the Chinese bought a 15 or 20% interest in the Rothschild Bank.  I thought that was amazing, that China was allowed to come in the fold and that China would want to.

So, what my question is, what makes you think the powers that be in China are not part of the global elite plan?  They have followed the same track as the Europeans and the US, albeit, in a much more closed society.  As MsCreant stated above, how are they different?  All part of the same game, with the same people.

 

Sat, 06/19/2010 - 13:05 | Link to Comment Trimmed Hedge
Trimmed Hedge's picture

"China powerbrokers fear the masses as much as the powerbrokers do here in the US or Europe."

 

Nobody fears the masses, son.

The lower classes of the entire world have been pussified.

Sat, 06/19/2010 - 14:08 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

Not really true in Continental Europe, where people have not been repressed and beaten down over years by the insidious Anglo-American type legal systems which function as extortion rackets against the people.

You saw the reality in Greece. We still have the heritage of the French revolution here, and people are intrinsically ready to spontaneously assemble into a huge mob, demonstrate, riot, and somewhat burn the place down if they feel they are pushed hard enough.

That is part of why it is much nicer to live here, governments on the Continent still fear the governed.

Sat, 06/19/2010 - 21:19 | Link to Comment dnarby
Sat, 06/19/2010 - 13:42 | Link to Comment Hdawg
Hdawg's picture

That is amazing.  But it would make sense as once you are bought into the fold these elites cross ownership structures in order to strengthen the relationships.  Very similar to how Royal families across Europe used to inter-breed.  The Rothys pretty much own the European central banks and may have 20% of the Chinese central bank franchise.  It would not surprise me if the Rockys did the same with the North American franchise.  Everyone owns a bit of each other to keep everyone on the same page.

 

Sat, 06/19/2010 - 14:28 | Link to Comment thesapein
thesapein's picture

I think China's cheap labor was a foot in but is no longer a good thing for them. As wages increase, so will their independence from outside consumers (who will see higher prices for goods from China). 

Yeah, China is not free of any blame for what's happening in the West. Most of our credit bubble was pumped from Chinese lenders. It's just not a conspiracy story because that would be like blaming the opposing soccer team for our loss. Well, they're trying to win, too.

However, I do wish we knew more about what China is doing, as well. They're the biggest player on the world stage right now, yet we know even less about them than we do about our country (living in the US).

Sat, 06/19/2010 - 16:14 | Link to Comment tmosley
tmosley's picture

Right, I'm sure that China advanced solely due to cheap labor, and that it had nothing to do with the adoption of free markets and the encouragement of capital investment.  Because other countries with huge amounts of poor laborers are attracting SOOOO much industry.  Africa is BOOMING!  Oh wait...it isn't.  Well, hell, I guess it isn't just cheap labor.

Americans are the mercantilists.

Sun, 06/20/2010 - 20:37 | Link to Comment thesapein
thesapein's picture

Wow, good point. One of those things that is so obvious that everyone seems to overlook it.

Mon, 06/21/2010 - 09:38 | Link to Comment fearsomepirate
fearsomepirate's picture

Also, despite decades of Communist oppression, they still value hard work and don't view success as a moral failing to be apologized for.  Give them a little freedom, and they'll run the world.

Sat, 06/19/2010 - 12:54 | Link to Comment Cookie
Cookie's picture

Most people in the West fail to understand that it is not all about China, it is about 'Greater China'. This encompasses everywhere from the west coast of the Americas to SE Asia. Guanxi between the Chinese communities in almost every country in the Pacific Rim and beyond. Philip Seagrave wrote a book many years ago, 'Lords of the Rim', worth a look. Chinese control, or dominate, economies in Taiwan, Philippines, Singapore, Malaysia, Thailand, Indonesia, HK, Vietnam, Myanmar, Cambodia, Laos, and yes, big chunks of California, Vancouver and Europe.

Sat, 06/19/2010 - 13:07 | Link to Comment Atomizer
Atomizer's picture

South Africa, Middle East and Vietnam are lower wage sectors to continue making cheap shit.

The IMF is running a new survey. You can win a ultra HD video camera for best video, I kid you not. See for yourself.

Tell the IMF your sob story--Declaimer Geographical conditions and restrictions do apply.

http://www.imf.org/external/mmedia/view.aspx?vid=95684358001

Sat, 06/19/2010 - 13:06 | Link to Comment truont
truont's picture
China Announces Dollar Peg To End

In other words, the Chinese are done accumulating USBonds in their holdings to keep the dollar peg intact. 

Odd timing....

Sat, 06/19/2010 - 15:36 | Link to Comment QQQBall
QQQBall's picture

USTs just got cheaper in Yuan terms, but currency adjusted yields went down. IF commodities get cheaper in Yuan terms, effective demand in China increases. The global game of asset/commodity capture just tilted east.

Sat, 06/19/2010 - 13:06 | Link to Comment pcrotty41@hotma...
pcrotty41@hotmail.com's picture

Anyone have a clue as to how the USD will react on Monday, up or down?  I took a long dollar position on Friday but am not sure what will happen now?

Sat, 06/19/2010 - 16:43 | Link to Comment Pamela Anderson
Pamela Anderson's picture

"Equities, commodities and growth-sensitive currencies such as the euro and Australian dollar are likely to gain, while the greenback and U.S. Treasuries retreat."

http://news.google.com/news/search?aq=f&pz=1&cf=all&ned=us&hl=en&q=China%27s+Move+On+Yuan+Bodes+Well+For+Riskier+Assets+

Sat, 06/19/2010 - 13:19 | Link to Comment Slash
Slash's picture

interesting.............so does this mean all the bumps have been removed on the road to the bottom? we can now inflate w/o having china out-inflate us.....so the 20% or so of our economy that has to do with manufacturing will surely make up for the other 80% of services.....prosperity, here we come!

Sat, 06/19/2010 - 13:21 | Link to Comment Hdawg
Hdawg's picture

US administation is pressuring for china to revalue at the same time as...

1) Deflation in luxury goods is hitting the wall.

2) Real inflation in essentials (food and energy) is rife and accelerating (futures prices are being supressed/controlles by the leveraged shorts (similar to the PMs shorts) and by overly favourable year on year harvest prejections by the USDA).  Physical shorts in the delivery markets are starting to show in the mainstream media.

http://www.marketskeptics.com/2009/12/2010-food-crisis-for-dummies.html

3) Tax cuts expire and new taxes are introduced.

4) The FED are printing money for fun.

With 70% of disposable products consumed in the US being made in China trade tariffs or a revaluation is going to hit hard.  All these inflationary pressures at once could/should trigger hyperinflation.

 

Sat, 06/19/2010 - 17:44 | Link to Comment DosZap
DosZap's picture

Hdawg,

"3) Tax cuts expire and new taxes are introduced"

This is what I consider hilarious(in a sick perverse way)..................WE raise taxes, and we have a REAL Unemployment percentage of 22%.

33 Million PLUS jobs are gone, and folks are getting their taxes raised.One third of Americans (give or take), have jobs, the other two thirds are on food stamps, and welfare,the rest are losing their homes, and anything else they have............

Who's going to pay those incresed taxes.......the Politicians?...............cause the "small" people are fooked.

Can't get blood out of a turnip.This is why, EVERYONE with half a brain must get the Hell out of their 401k's, and IRA's.........

You will not be getting (if any ) 50% of SS/MC, and they are going to Nationalize/Seize, stop you from gaining access to it, what you have left.. anything tangible that's visible.

 

And, the BENEVOLENT UNCA, is fixing to come back on those folks who were considered victims, with a vengance...........cities are already throwing folks out of their homes for non pmt of Utilities!, and in Jail........until they get their overdue payments.

Sun, 06/20/2010 - 01:46 | Link to Comment Hdawg
Hdawg's picture

DosZap,

I totally agree.

All these policies are deliberately designed to wipe out the middle class of America leaving the popoulation totally reliant upon the elite controlled government.

The Republic is dead.

 

Tue, 09/21/2010 - 19:44 | Link to Comment Advance
Advance's picture

I agree with Hdawg.  It's all about control of the population.  

Sat, 06/19/2010 - 13:26 | Link to Comment Kurtieboy
Kurtieboy's picture

If this is true, this is huge news.

Sat, 06/19/2010 - 13:50 | Link to Comment long_and_short
long_and_short's picture

this is HUGE news .. question is is this really a yuan appreciation event (short term yes), but keep in mind the have a lot of single males (who arent getting laid btw) getting angry as their export market evaporates in Eurozone and US.

Perhaps this is their way of playing global citizen, while behind the scenes really looking to depreciate the yuan further to get exports going again.  Easier to depreciate in a floating situation than when youre pegged.

this is now the race to the bottom - beggar thy neighbour.

bottom line it is still a dictatorship and they will do what they need to to keep themselves afloat.

Sat, 06/19/2010 - 13:54 | Link to Comment Hdawg
Hdawg's picture

"bottom line it is still a dictatorship and they will do what they need to to keep themselves afloat."

 

Yeah but what about the Chinese?

Sat, 06/19/2010 - 13:58 | Link to Comment long_and_short
long_and_short's picture

nice ......

Sat, 06/19/2010 - 14:01 | Link to Comment Kali
Kali's picture

It's all one big dictatorship, everywhere.

Sat, 06/19/2010 - 14:17 | Link to Comment Hdawg
Hdawg's picture

Just kidding long_and_short but Kali gets the point. 

The West has been under a progressive fascist dictatorship for a long while .. but we were so busy playing with our ipods we did not notice and now payment has come due.

Sat, 06/19/2010 - 14:38 | Link to Comment long_and_short
long_and_short's picture

@Hdawg

my nice.....

was in definite agreement with you.

my famliy fled europe during wwII.  My father always said, the difference between the communist/dictators in Eurpoe and North America is that at least here you wrok and you can accumulate/buy something, wheras "overthere" you work and get nothing.

also said, dont fool yourself if you think you live in a democracy, they just have a different set up here.

 

Sun, 06/20/2010 - 02:00 | Link to Comment Hdawg
Hdawg's picture

long_and_short

i see, cool.

"difference between the communist/dictators in Eurpoe and North America is that at least here you wrok and you can accumulate/buy something, wheras "overthere" you work and get nothing."

Obama's poilcies will deliberately wipe out the middle class leaving everyone reliant upon the elite controlled government.  Then, unfortunately, America will be exactly the same as the rest.

America is/was a Republic which is based on the rule of law, not the European style democracy.  The word democracy is not mentioned once in the US Constitution or Bill of Rights.

Mon, 06/21/2010 - 09:42 | Link to Comment fearsomepirate
fearsomepirate's picture

Never assume malice where incompetence is a sufficient explanation.

Sat, 06/19/2010 - 13:40 | Link to Comment johngaltfla
johngaltfla's picture

Boom. I just read the news in the 6-20 edition of the Shanghai Daily. This will shake the FX markets and could put a floor under the Euro.

Sat, 06/19/2010 - 14:16 | Link to Comment pcrotty41@hotma...
pcrotty41@hotmail.com's picture

Why do you say that?  How will this strengthen the Euro?

Sat, 06/19/2010 - 20:34 | Link to Comment johngaltfla
johngaltfla's picture

The Chinese do not want any more dollars. The announcement says a "basket of currencies" which means they will rebalance, primarily using Asian currencies and the Euro while slowing divesting away from the USD, IMHO.

This should put a floor under the Euro sooner rather than later, yet that floor could still bring it to parity with the dollar before it bounces back.

Sat, 06/19/2010 - 21:15 | Link to Comment Snidley Whipsnae
Snidley Whipsnae's picture

...and the Swiss are thanking their lucky stars for a stable Euro

Sat, 06/19/2010 - 13:44 | Link to Comment Careless Whisper
Careless Whisper's picture

The price of gold just went down for china.

Sat, 06/19/2010 - 14:11 | Link to Comment Hephasteus
Hephasteus's picture

And will continue down hard and fast without the currency peg.

Sat, 06/19/2010 - 16:10 | Link to Comment MsCreant
MsCreant's picture

When China ends the pegging, is the US screwed (for the sexually conservative among you, don't click this link)?:

http://artheat.net/uploaded_images/Doggy_style_pegging-781198.png

 

Sat, 06/19/2010 - 16:22 | Link to Comment dogbreath
dogbreath's picture

is that a colonic irrigation device on the headboard?  IV drip ??

Sat, 06/19/2010 - 21:31 | Link to Comment MsCreant
MsCreant's picture

dogbreath, don't take this personally, the joke is there and I must say it just this way. You set it up, I'd be derelict in my duty. Ready?

 

It's a douche, you douche!

Sat, 06/19/2010 - 16:57 | Link to Comment Hephasteus
Hephasteus's picture

No. The US is screwed from labor parity. The chinese and indians are going to rock the entire world with labor demands. While europe gobbles up the free gold. This will cause a 2 prong affect. Severe eroding of central banks "illusion" to make good on payments in a global bank-gold run environment. Massive inflationary forces in the fiat domain.

The central banks will try to hedge and weigh down the gold bugs with massive gold buying and allowing the price of gold to rise. Then the poorest of the poor will get them by using a route that they could easily cut off but will never occur to them.

They are going to take the Gulf spill money and put it into the war in Afghanistan and that is going to piss people off in a way that hasn't been seen before.

The people who run out of the bushes and pick up carcasses on the beaches will drop from exhaustion and be hospitalized from methane and hydrogen sulfide poisoning.

They got about a week to nuke that oil hole shut before they lay down a road that literally goes to nowhere.

Sat, 06/19/2010 - 21:28 | Link to Comment MsCreant
MsCreant's picture

Heph,

What of the idea that the nuke could make things worse by creating a substrata tree of fractilian fractures, each one leaking all over the ocean bottom.

I wish I could cleanly believe in the nuke but I see unintended consequences that could fuck things up worse (actually, I am not so sure of that, this is fucking bad).

So you think they'd take money from anything at all and put it into the war machine. They already took Granny's money, so indeed, why not. 

Sat, 06/19/2010 - 14:23 | Link to Comment Apostate
Apostate's picture

Well-played, CCP...

Sat, 06/19/2010 - 14:53 | Link to Comment ozziindaus
ozziindaus's picture

My bet is that if a true unpegging was to take effect through less USD sterilization in China, than a deflationary bust will certainly take place. UST's may take a slight hit with higher yields but I'm more afraid of the US equity markets and especially the blue chips with great representation/exposure in China. 

Think of it this way. Suppose that a state in the US monopolized a certain industry, say furniture in NC. NC then raises income and corporate property taxes. Before you know it, prices rise without increasing demand. This is not inflationary since it has not effected the money supply but rather capital destruction because it hits utilization and employment. If a market willing to absorb higher prices and consume excess furniture is not found soon, then prices must drop or capital utilization and employment must decrease. This is deflationary. 

Sat, 06/19/2010 - 15:03 | Link to Comment kaiten
kaiten's picture

Dollar down, Treasuries up.

Sat, 06/19/2010 - 15:05 | Link to Comment chistletoe
chistletoe's picture

It seems to me that the USA is far less important than its citizens believe it is.

I'm guessing that it wasn't the USA which formed the impetus for this move

and it won't be the USA which is most affected.

I've been watching the Baltic dry Index collapsing over the past few months.

Its gone down almost as fast as the Euro/USD pair.

Yet, appalachian coal prices have been holding steady.

Then it dawned on me:  if the Chinese currency is pegged to the dollar

then the Euro/Renmimbi pair has also declined hugely,

which means that Chinese goods destined for Europe have

increased enormously in price ... and the quantity slowed to a trickle ...

...and that's got to be killing the chinese economy ...

 

What the chinese probably want right now is to be able to

devalue their currency right along with everybody else.

Are they planning some intervention a la BOJ?

Won't it be just peachy keen if the renmimi/USD actually starts to DECLINE on monday?????

Sat, 06/19/2010 - 16:09 | Link to Comment Quinvarius
Quinvarius's picture

Kind of like when you tear out the foundation of a house and it magically floats away into the air on the wings of unicorns leaving a trail of pixie dust?  Yes.  Your theory is so plausible, I am surprised Hans Christian Anderson didn't come up with it.

Sat, 06/19/2010 - 16:28 | Link to Comment PhattyBuoy
PhattyBuoy's picture

... he was too busy playing football !

Sat, 06/19/2010 - 20:18 | Link to Comment Burnbright
Burnbright's picture

Sadly I have given up hope that Asians are as smart as their stereotype would imply. I think the Chinese have shit for brains, his comment is just as likely to me at this point as them letting their currency appreciate. If they have any intelligence they will let their currency appreciate, but I doubt it.

Sun, 06/20/2010 - 20:50 | Link to Comment thesapein
thesapein's picture

Well, they're still doing better than us, though I'm not sure it makes them smarter.

Also, what if they aren't in the mindset of surging ahead at the expense of others? What if they've been keeping the peg to help us? I mean, that has been the result of the peg so why not the intent? Americans say the Chinese are not about individualism and ambition; what if that's right? I don't think so, but it's consistent.

Sat, 06/19/2010 - 16:27 | Link to Comment PhattyBuoy
PhattyBuoy's picture

Agreed. Turbo tax timmy may be in for a big surprise!

The race to the bottom continues ...

 

Sat, 06/19/2010 - 15:08 | Link to Comment DavidC
DavidC's picture

China didn't want the Yuan issue discussed at the G20 meeting. By putting out this non-commital commitment they'll have achieved exactly that.

DavidC

Sat, 06/19/2010 - 21:23 | Link to Comment Snidley Whipsnae
Snidley Whipsnae's picture

Bingo! Give DavidC a cigar!

Sat, 06/19/2010 - 15:28 | Link to Comment dan22
dan22's picture

My hometown is zhejiang, now I live in shanghai, my sister pledged her home to bank, she lived in hangzhou, she bought her home around 500,0000rmb five years ago, now her home worth 2million rmb, so she can get huge loan from bank, she gave this loan to a shark loan company with 30% return every year, she has been doing and living on this for 4 years, she is a middle school teacher, she earned 4000rmb per month, but with this lending arrangement, she has been able to buy a car, the interest income is 6 times of her salary, One of my cousin's father lost all his principle of 4 million since one scheme blow up in 2008. That is my personal experience. 2 months ago I went back to my hometown in new year, this is 3 tier city, but many so investment companies shop in the street, and in 2009, I saw the so called investment companies( shark loan) opened in the town level, I visited four small towns, I saw there is shark loan shop in every town. China media is controlled, so you can’t find many negative exposure, but if you dig a little bit deep, by doing some search for shark loan in Chinese, you will find out how serious the problem is. In my home town a 150 million ponzi scheme blow up in 2008, the leader turned himself in after he paid all the local official leader in full, and he felt safe enough knowing he will be protected, but my cousin's father was not so lucky for his 4 million, since he do not get his money back. Some people compare this bubble to Japan, to be fair, what happened in China real estate, the madness, the greedy, the loan shark with 100 % interest rate, it is much, much worse. “

Source:

 The Secret Engine Behind China’s Housing Bubble- The Ponzi Shark Loan Finance

 

Sat, 06/19/2010 - 15:30 | Link to Comment QQQBall
QQQBall's picture

Well, they just took the Yuan off the G-20 Agenda. preemptive

Sat, 06/19/2010 - 21:07 | Link to Comment TGR
TGR's picture

Yep this is what it's about. There hasn't been a strict yuan=dollar peg anyhow in the true sense, it's more a managed trading band (which has been 0.5%) and has been weighted against a basket of currencies over the past few years.

All they've said is they are willing to be more flexible, which could translate to stretching that trading band to 0.7% or similar. They ruled out a one time revaluation.

Sat, 06/19/2010 - 17:01 | Link to Comment Cyan Lite
Cyan Lite's picture

+50 handles on the S&P tomorrow. We go back to 1220!

Sat, 06/19/2010 - 17:39 | Link to Comment Implicit simplicit
Implicit simplicit's picture

Maybe, but 1040 or less by the end of the week.

Sat, 06/19/2010 - 19:52 | Link to Comment Turd Ferguson
Turd Ferguson's picture

Yes, buy all means, buy the market with impunity! 

As if the underlying problem with the US economy is an overvaluation of the $ vs the yuan. 

Sat, 06/19/2010 - 17:27 | Link to Comment Turd Ferguson
Turd Ferguson's picture

Could this be the catalyst for the gold breakout everyone's been expecting?

Sat, 06/19/2010 - 20:32 | Link to Comment tmosley
tmosley's picture

The Yuan suddenly starts appreciating rapidly, meaning gold is cheaper for the average Chinese citizen, meaning they can buy more than their already high consumption amounts.

Looks about that way.

Sat, 06/19/2010 - 22:24 | Link to Comment TGR
TGR's picture

The only thing is, the yuan is not going to suddenly start appreciating rapidly. The BOC ruled out any major revaluation, and the 0.5% trading band remains in effect.

It will most likely mean more of the same, carefully managed weighting of the yuan against any of the other major currencies, or tiny incremental changes to the yuan's current 0.5% trading band. Any changes will be very gradual so as not to disrupt trade too much.

Sat, 06/19/2010 - 17:34 | Link to Comment Implicit simplicit
Implicit simplicit's picture

The chinese workers are getting angry about rising inflation and low wages. They are starting to protest and organize, as mentioned by Kali in an earlier post.

The chinese goverment can partially appease two birds with one stone (Chinese workers and US gov.) with rhetoric about floating the yuan.

 This will still prove to be a balancing act between preventing uprisings, continuing vigorous exports, and slowing inflation while growing GDP.  Nothing will happen expeditiously.

Sat, 06/19/2010 - 21:04 | Link to Comment Hephasteus
Hephasteus's picture

Look it's simple. Pegging forces gold to be moved around. There's none left. So if everyone stays pegged it forces rich governments to inflate like mad. China building ghost cities and super malls and stupid crap show the limitations of how damn hard it is for a few thousand stupid assholes to blow through billions in any sort of meaningful way. It's causing inflation it's pissing off everybody in the country.

2 moves. Somebody better start pulling gold out of thier ass or china is going to have to go on an apeshit crazy kind of militarization. Or weaker currencies are going to have to start going under. The crazy uncontrolled stupid inflationary spending is counterproductive. It scares people they buy up the gold this makes pegging harder and harder until it's impossible.

I mean come on. Monetize one more time switzerland see what happens. If china inflates to a point where it's own citizens start getting out into the international supply of gold.... Ouch.

If china doesn't break it then india has oh about 4000 years worth of frozen stored up shit that it can happily dump on the fan. Nothing is better at shit storage than a rigid arbitrary caste system full of bullshit brahma class and bullshit astrologers.

http://www.ratemyeverything.net/post/8016/40_Lb_Box_of_Rape.aspx

Sat, 06/19/2010 - 17:38 | Link to Comment Djirk
Djirk's picture

My guess it will be a managed float where they don't kill thier export markets and asset values overnight, but a long term shift towards opening new markets and establishing the Yuan as a reserve currency. Aren't they already using the Yuan for some ëmerging market transactions?

Sat, 06/19/2010 - 17:57 | Link to Comment DosZap
DosZap's picture

Just because the PROC cost of PM's may go down, doesn't change a damn thing here..........we still have the same problems, and their worse by the day.With NO hope for change.

Prices for PM's are different all over the world...............

Stand and Hold..................panic, your fooked.

Sat, 06/19/2010 - 18:15 | Link to Comment msjimmied
Sat, 06/19/2010 - 18:36 | Link to Comment kaiten
kaiten's picture

too much vodka?

Sat, 06/19/2010 - 21:53 | Link to Comment nuinut
nuinut's picture

The end of US/IMF hegemony.

Due to MOPE, Americans will be the last to notice.

Watch US make exactly no headway at G20.

Sat, 06/19/2010 - 18:26 | Link to Comment john_connor
Sat, 06/19/2010 - 20:22 | Link to Comment DJFUNK
DJFUNK's picture

This will accelerate the great unraveling. USD has been able to "hide" in the RMB. Once our utter weakness is exposed, the decline will further accelerate. In the end, "they" will confiscate GOLD. They will not allow the one expression of private wealth for millennia to "overthrow" their power....ever. The "they" are western govs...particularly the US. Its almost like "they" are driving us to it.....no independent wealth....no private thought. Welcome to the global SDR and INGSOC.

Sat, 06/19/2010 - 20:40 | Link to Comment Implicit simplicit
Implicit simplicit's picture

China forex move could thwart U.S. hopes - Roubini

http://www.reuters.com/article/idUSN1915926720100619

Sun, 06/20/2010 - 14:40 | Link to Comment PhattyBuoy
PhattyBuoy's picture

The yuan has risen sharply in recent months against the euro, which sank over Europe's debt problems, so a stronger yuan could not be taken for granted, he said.

If the euro were to continue to depreciate, "the renminbi would have to be allowed to depreciate relative to the dollar, a paradoxical outcome," Roubini said.

His comments echoed those of an adviser to China's central bank on Saturday.

Sat, 06/19/2010 - 22:55 | Link to Comment BurningFuld
BurningFuld's picture

Charlie Rose interview with the former Mayor of Singapore. Lee Yew is simply brilliant. He laughs when Charlie asks if China will overtake the US..then explains why he laughed. Well worth your time.

http://www.charlierose.com/view/interview/1257

BTW this is the guy that put China on it's current economic path...don't dismiss what he says.

Sun, 06/20/2010 - 10:00 | Link to Comment john_connor
john_connor's picture

More out of Reuters.  My take is this might be good for a small short lived rally on Monday/Tuesday with all hell breaking loose when Schumer introduces legislation. 

http://www.reuters.com/article/idUSTRE65I11B20100620?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28News+%2F+US+%2F+Business+News%29

Mon, 06/21/2010 - 12:55 | Link to Comment doggings
doggings's picture

indeed, where would we be without one of these at the end of every comment section?

Sun, 06/20/2010 - 16:30 | Link to Comment Crummy
Crummy's picture

I guess this means PBOC tops the list of those willing to finance BP, I take it?

I wonder if Wen Jiabao's farewell speech will end with a cryptic warning about a military industrial complex.

Sun, 06/20/2010 - 17:18 | Link to Comment DosZap
DosZap's picture
Saudis hoard twice as much gold as thought - Financial Times, Jun 20 2010 5:00PM

OT, but newsworthy...........

 

 

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