China Press Lashes Out - It's The Dollar, Not The Yuan That Threatens Global Stability

Tyler Durden's picture

Originally posted at ChinaDaily.com,

Recently, the Chinese currency fell to its lowest level since late 2008. The renminbi has been trading around 6.92 to the US dollar. The plunge is typically explained with the anticipated US Federal Reserve rate increase in December and president-elect Donald Trump's threat to label China a currency manipulator and slap tariffs on Chinese exports.

In reality, there is much more to the story.

 

In the long term, China's growth will translate to currency power in foreign-exchange markets. In October, the renminbi officially joined the International Monetary Fund's currency reserve basket, known as Special Drawing Rights. In the coming decade, the renminbi will expand rapidly through the IMF reserve basket, the allocations of central banks, and those of public, private, sovereign and individual investors.

After summer, the renminbi's fundamentals improved thanks to positive spillover effects from overcapacity reduction, fiscal stimulus and a boost to export competitiveness, due to weaker exchange rate.

In the fourth quarter, the Chinese currency will also feel the adverse impact of a mild correction of property prices.

The renminbi's short-term volatility is also compounded by the tumultuous global environment and the US dollar. Along with other emerging market currencies, the renminbi must cope with the US dollar, which recently hit a 14-year high, driven by rising US bond yields, expectations of a Trump fiscal stimulus and the impending Fed rate hike. In the process, other Asian currencies?the Japanese yen, Indian rupees, Korean won, Indonesian rupiah and the Malaysian ringgit?suffered a sell-off.

In the long term, the spillovers from the US and Chinese financial markets are likely to have a different impact on financial markets in the Asia-Pacific region. Studies conducted by central banks suggest that in normal times China's influence in the equity has risen close to the US' level, although the relative impact of the US has been stronger during crisis periods.

The influence of China is based on a regional pull, while that of the US reflects a global push. The current crisis favors the dollar, but over time stability will support the renminbi.

Unfortunately, the renminbi, along with other emerging market currencies, must also cope with the dollar's growing risk in the world economy. Before the 2008-09 global financial crisis struck, there was a close correlation between leverage and the volatility index (VIX). When the VIX was low, the appetite for borrowing went up, and vice-versa. That correlation no longer prevails, due to years of ultra-low rates and rounds of quantitative easing by advanced economies' central banks.

Recently, the Bank for International Settlements reported that the US dollar has replaced the volatility index as the new fear index.

As the VIX's predictive power has diminished, the dollar has become the indicator of risk appetite and leverage. This dynamic has distressing implications, because it has pushed international borrowers and investors toward the dollar.

And yet, as the dollar's appreciation is exposing borrowers and lenders to valuation changes, the US' fundamentals are eroding, as president-elect Trump himself has acknowledged. The US' sovereign debt has soared to $19.9 trillion. And in the past year, foreign central banks sold almost $375 billion in US Treasuries.

In these conditions, the Fed rate hikes could boost the US dollar as a kind of global Fed funds rate, which would result in dollar tightening and deflationary constraints?which, in turn, could impair emerging economies that today fuel global growth prospects.

 

 

It is not the renminbi but the US dollar that today poses the greatest risk to the global economy and serves as its fear gauge.

 

*  *  *

Authored by Dan Steinbock, the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore).

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Relayer74's picture

Go ahead raise rates. What happens to the interest on that 19.9 trillion?

 

38BWD22's picture

 

 

It will only be new debt that has to be paid at the higher rate.  All that old debt gets easier to pay.  See Antal Fekete for what happens when rates change up and down.

Besides historically China has always screwed up when on the verge of greatness.  They have many problems, worse (IMO) than ours.

Fear not.  America will only be defeated from within.  Not by China and their yuan.

King Tut's picture
King Tut (not verified) 38BWD22 Nov 24, 2016 2:26 AM

You are right, DCRB- any country that has massive outflows of capital like China does is not exactly a paragon of economic virtue

Tigg47's picture

Not only new debt but also old debt that needs to be re-financed. Got it?

hobopants's picture

Yep, and considering we add debt every year, not pay it off, all of the existing debt will be rolled over at higher rates.

HedgeJunkie's picture

""I's The Dollar, Not The Yuan That Threatens Global Stability"

 

Yeah, and...?

eforce's picture

After seeing China's pollution problems, one only need imagine how rotten their economy really is...

JRobby's picture

When advised to go long maturities years ago when ZIRP arrived they did what again?

Fucking assassins! By design! "But oh!, we would have had to plan and budget! Impossible for GOVT to do!"

Mountainview's picture

So, Chinese go fast and sell your Treasuries, but what will you buy then?

Elco the Constitutionalist's picture
Elco the Constitutionalist (not verified) 38BWD22 Nov 24, 2016 3:12 AM

Your argument is can kicking?

JRobby's picture

As usual. The end of the road approaches. 

Sucking USD's back to the place where the income flows will be greatest, the crash the biggest.

Final moves in the game.

new game's picture

THIS DEMOCRACY IS PAST EXPIRERATION DATE.

desparation prevails in daily life. all around.

the human suffers by it's own mental state.

that being intellectual stupidity...

IS intellectual stupidity

out of that morphs group dumb.

survival forgottn, unsustainable, chaos, death to fib reset...

i give gorillas a better chance, if we haven't killed all of them. OR monkeys.

or wolves...

MEFOBILLS's picture

In a money system where virtually all of the money originates as a debt instrument, then one has to think in terms of time and flows.  Bank credit especially flows in an accounting periodicity.  Worse, these flows can have exponentials of credit creation and destruction (booms and busts) as part of system design.

New debt hypothecates new bank credit.  This bank credit is then available to pay off past debt instruments.

Higher interest on new debt will demand more from the future, while at the same time said new credit can be thrown backwards to pay off old "cheaper" debts.

In the case of old hypothecated debt instruments,  new credit money when it enters ledger to pay down principle, will make this new bank credit disappear.  Disappearing bank credit then requires MORE future debt instruments at the higher rates, putting the future into usury hock.  This pattern is something like walking in a funnel, and can be seen with the demand of ever more "money" to be in future supply.

I've read much of Antal Fekete writings, and he is confused on how a debt money system works.  Without understanding double entry mechanics and banker doctrine, one becomes a tad tarded.  And yes, it is difficult to understand finance doctrine, as it is made opaque on purpose.  He is also confused on real bills doctrine, especially as to the real bill value allocation (assumptions).   Although, go ahead and read Fekete for technical analysis on how real bills worked in the past. Something like Schacht's Mefobills would confuse Fekete totally.

In a debt money system, debt instruments must be legally canceled, or exogenous treasury money must be used to pay said debts off.  

Peterk_kk's picture

Nothing.  The USA controls its own currency.  

Everyone is a doomsayer - sorry the Dow Jones is going up.

 

JRobby's picture

Enjoy while you can.

Orderly unwind requires cooperation.  

(Laugh Track Deafening! !!!!)

MEFOBILLS's picture

Nothing.  The USA controls its own currency.

 

The U.S. does not create its currency.  U.S. money is corporate bank credit, created upon hypothecation.  Private debts are formed when you go to a bank. Look at printed money, it says clearly Federal Reserve Note.  It does NOT say U.S. Note.

Public debts are formed when a TBill is issued, and said Bill is hypothecated into new credit....at... you guessed it... a private bank.  I consider the FED to be an agent for private banking.

The U.S is not a sovereign issuer of its own legal currency.  The U.S. dollar is the WORLD reserve currency.  There are foreign entities who can actually hypothecate dollars into existence, and further are linked to the reserve loops of private corporate banking.

A concept like Triffin's dillema is hard to understand, until one realize that the U.S. does not control its own money.  With Triffins dillema, the U.S. cannot stimulate its own economy without stimulating the world  economy.  Or, rather, that part of the world economy that uses dollars as reserve.

www.sovereignmoney.eu

Colonel Klink's picture

They're right though. It's the dollar which imperils everything, since everything is priced in it. We're exporting inflation around the world with our devaluation of the currency. It's the Federal Reserve who is the prime currency manipulator.

King Tut's picture
King Tut (not verified) Colonel Klink Nov 24, 2016 2:21 AM

Confucius say: Chinaman that pegs currency has no room to talk

Urban Redneck's picture

Only to the extent that that the Chinaman with the 2cm schlong is accusing the Yellen and her 44cm schlong of being a big swinging dick and a systemic risk.  Neither 2% nor the 44% is an appropriate share of global f/x flows based on the sizes of the respective economies.  If the Chinese weren't engaged in neomercantilist practices and policies that resulted in defacto currency manipulation and f/x accumulation then their currency would be priced very differently.  Any WRC needs to export its currency/debt to meet world demand, but abuse of that exorbitant privilege adds weight to the Chinese accusations. 

Colonel Klink's picture

Oh I never said that China was without guilt. But you know who's REALLY guilty, the self-hating JEW who's been at the center of the whole shyster scheme. The same userous scum who've been kicked out of so many nations. You know, because they're just being picked on and never deserve it.

HedgeJunkie's picture

You're facist roots are showing, i recommend Clarol.

Get that Uber-Blonde, pride of the father-land look.Look into Lady Clariol!.

While I'm funning everyone.  You kinow hitler's idea blonde, blue -eyed man was, right?

I am that asshole.  Blonde and blue eyesd.  And you're better off not pissing me off to bad. We're known to chop hands off and nail them to our s

+hields.

 

JRobby's picture

Something about cooperation and orderly unwind.........

(Laugh Track Deafening! !!!!!!)

Colonel Klink's picture

Thanks, no need. I'm blond hair blue eyed by heritage. Your only problem is that the truth hurts. Time and history prove me to be correct. I'm sorry, not sorry, who's the current head of the Fed, who before that, and before that? Um yeah, go fuck yourself pumpkin!

A. Boaty's picture

The zio/neocons use the phrase "self-hating Jew" to describe the rebel Jews who do not go along with the program. The ones who run the show have a very high opinion of themselves. We should reserve our ire for the zio/neocons, and not condemn Jews generally.

Colonel Klink's picture

It was tongue in cheek humor. Agreed those shysters at the top think they're god's chosen people, and the rest of us are cattle. I look forward to seeing the meeting arranged for them in the future.

Ghordius's picture

not sure I can agree with all of that, UR

"If the Chinese weren't engaged in neomercantilist practices and policies that resulted in defacto currency manipulation and f/x accumulation then their currency would be priced very differently."

If I was a Chinaman, regardless of my dick size I'd be inclined to say something like "we saved your ass, buddy". To the tune of 2'600 billion USTs, at a time when Uncle Sam had the feeling it had to splurge more then usual

That's the situation we europeans had for some decades. Whenever our national banks accumulated FX reserves in USD... well, for sure no "thank you" notes from the lands of Tricky Dick (who tricked us and woke up the Dragon)

from the article: "The current crisis favors the dollar, but over time stability will support the renminbi. "

also don't agree. the FED is doing nothing and... letting USTs mature. that's tightening, isn't it? that "fear trade favours the dollar" is neat, but does not explain everything, and I think this part is more relevant. (but I have not checked the numbers, that's something I only do every quarter)

Urban Redneck's picture

I think whether it's we saved your ass or we screwed your ass is a function of whether the American is a borrower or saver.  I also think there are significant differences between the practicable options available a business owner in China and a business owner in the Eurozone since the adoption of the Euro, and the death of the snake and associated currencies.  Those options and proclivities are a function of PBOC policy and the less than free float and full convertibility of the CNY. The eurodollar market is mature and open, and even back in the dark ages of the G10 in the Tower of Basel -  Europeans didn't have any objections or obstacles to converting their proceeds into their own local currencies.  Dollar denomination of financial products doesn't explain why where 2 economies of roughly the same size one has over twenty times the market share of the other.

Ghordius's picture

UR, when you mention the EuroDollar market, you are mentioning what started as Soviet Russian dollars in western european countries, aren't you?

look, I'll put it this way: sometimes, I get the impression that most Americans don't "get" what it means to be under the shadow of the Global Reserve Currency, for citizens, for national or central banks and for sovereigns. A bit as if you were talking about a cyclone to someone that lives since ever in the calm eye of that thing (I know, you are in CH, but the way you talk about it does not sound so to my ears)

I'll make an example: just returned from Argentina. there, the Dollar rules. it's most emphatically the currency, period. just one of many markets that nevertheless are orientating versus China for their exports

King Dollar rules. it's a fact. hence the dominance, which will continue until it erodes away, one little percentage after the other, imo

it's our problem, remember?

Urban Redneck's picture

King Dollar does rule.  I remember when UNTAC came to Phom Penh in '92, Hun Sen imported counterfit NorKor $100 bills and stuffed the local ATMs with them and then pocketed all the genuine $100 bills intended to pay UN salaries.  Good Times... At the same I still have scans of term sheets of State owned Chinese commercial banks offering foreign governments USD denominated loans at negative spreads to both CHIBOR and LIBOR for the express purpose of buying Chinese manufactured goods.  There is a certain amorality to foreign and economic policy, but the Chinamen are downright uncivilized, and conflate the lack of a moral compass with a lack of any constraints or rules.

JohnGaltUk's picture

Correct, the key to the next economic event is the dollar going to the moon. It will wipe out 5 trillion in USD loans in the emerging makets.

I expect more bond movements when their are NO bids, then the exits will get very crowded, then you will see many pension schemes get blown up. Some folks are mentally insane, who would ever buy a century bond or Italian 50 year bonds, its over and it has been for a very long time. 

There are a generation on Wall St that dont even know what a 5 to 7% interest rate looks like. Liquidity will dry up and housing will go down by 50%, this hokus pokus is done. I remember in 2007, I had to refinance my mortgage which I did in June by september\ October there were very few products left on offer. We could see lending stop all together.

Trillions of dollars are simply going to disappear. The BRXIT and Donald Trump is proof that the majority do not believe in the system anymore. Fait money is no more than a confidence game. No confidence, then the game stops.

Lets all be crystal clear on this. Socialism is responsible for this event. Its what happens when you have too many takers, not enough makers and a currupt political elite whom are only interested in money and power. Please read Ayn Rand - The Meaning Of Money. Very clever women.

JRobby's picture

There WILL BE BIDS until the CARTELS say there WILL NOT BE.

silverer's picture

And as history goes for paper fiat, so will go the dollar, until the greed and avarice of its controllers suck every bit of human labor out of it that it represents. It's been a history of stealing from the little guy from the day they started printing it. The Founding Fathers recognized the danger long ago, and warned of it. The controllers teach kids in school "other things".

Colonel Klink's picture

Totally agree, it's hard to rob an educated population. Why do you think they don't teach us anything about the Fed, finance, or how our monetary system works? Right?

fbazzrea's picture

hopefully, the Fed will sober up before the December FOMC meeting and stop creating chaos in the global markets with continuous talk of raising rates. get real. Americans can't afford the interest payment increases on our national debt. we're borrowing money to pay as it is. robbing Peter to pay Paul. this never ends well. illegal for everyone but the gubmint.

so... dear Janet, you're screwed. nowhere to hide. nowhere to run. damned if you do and damned if you don't. 

retirement probably never looked so good.

China, hang on... won't be much longer.

 

King Tut's picture
King Tut (not verified) fbazzrea Nov 24, 2016 2:28 AM

25bp hike in Dec and that's about it for a (long) while

JRobby's picture

Yes Tut, a "face saving ritual" nothing more. Back to the "Yellen ping pong tournament" to move stocks around.

JohnGaltUk's picture

Besides the crediability issue, Yellen HAS to raise rates. Years ago when pension funds were setup they used a model which required a 6 to 8% interest rate so these pension funds have been starved of that type of yield now for over a decade. Some of these pension funds will have become desparate and pushed into riskier position which under normal conditions they would never have taken a second look at.

The are millions of people which are approaching retirement now that have no idea they could be left with nothing or only a small fraction of what they thought they were going to get. Observe round the world at the moment how many pension schemes are under stress, Dallas may even go bankrupt over it. Here in the UK, I saw a figure of over a trillion shortfall in UK pension schemes, I thought the figure was round 600-800 billion. There are going to be a lot of disappointed folks who will turn into very very angry citizens. This will translate into civil unrest.

Why do you think Heir Merkel let in 1 million muslims into Germany? Socialism needs to bring in new punters to the socialist ponzi scheme! Socialism was born out of the baby boomers because the state, mistakenly thought their would be an ever ending line of taxpayers. The boomers only had 2 children at most compared to their parents whom had 5 to 8 children. Of course politicians offered their citizens pensions but did'nt bother funding it, they thought that there would always be an expanding base of tax payers but they were wrong.

In the USA I think the figure is about 10.000 people retiring aday, they have gond from oneside of the ledger to the other. Germany's demographics are bloody aweful so Heir Merkel thought she would let in these refugees thinking that they would be tomorrow's taxpyers to pay for the state promises to its elderly. WHAT COULD POSSIBLY GO WRONG!

Ghordius's picture

OT; "Why do you think Heir Merkel let in 1 million muslims into Germany?"

how about mentioning a damn war? actually, a dozen of them?

this has become a kind of Political Correctness of the Far Right: mention the Muslims (help, help!), don't mention refugees from violence and war, in the case of Syria alone 10 frigging millions of them out of a population of 20 millions

seriously, the way this Far Right PC-ness is going is approaching the levels of Trash Food, sorry, I mean Trash News. A label I would vastly prefer to that silly "Fake News"

yes, "fresh blood" is part of the theme. but it's not that relevant in the case of Germany, which is already the home of some 4.5 million Turks, all Muslims, since the 50's and 60's

Putin has whole Muslim republics that are part of his Federation. And the SU had the "Stans", too, again Muslim republics. Don't tell me that he was taking over Crimea without knowing that it's the ancestral home of the Crimean Tatars, which are Muslims, too

Catherine The Great, aka Catherine II, aka Sophie Friederike Auguste von Anhalt-Zerbst-Dornburg, aka The Empress and Autocrat of All Russias allowed again the building of mosques in several "Muslim Russias" in 1766. For example in Tatarstan

now, that Catherine was for a while the one figure out of history on which both Dr. Merkel and Mr. Putin could agree on, and not only as a symbol of how much German and Russian history are entangled

get real, with that "Muslim Scare". you are in the UK, judging from your nick. plenty of Muslims that you have there, don't you?

JohnGaltUk's picture

Letting in 1 million muslims into a christian nation is mentally insane. It would be the same as importing 1 million black people into the Ukraine or Poland.

Wether folks admit it or not they are motivated by their own selfishness. Every socialist whom claims to be altruist which is a contradiction because they are being selfish by forcing socialism on everyone anyway and they are prepared to use force to boot.

Merkel didnt let them in because she is a lovely nice person, just look what she has done to her EU brothers and sisters in Greece. Socialism is a ponzi scheme and the west's flirtation with it is coming to an end. She is only trying to prolong it's demise by getting new victims into the game.

When the UK opened its boarders to eastern europeans back in 2003/4 I knew that was a very bad move. I am well travelled through eastern europe and have been their many times. I was in Kiev at the time of the orange revolution. Again the state (Labour) wanted to let them in to become good Labour voting socialist. This fact has been admitted by Labour MPs.

Germany is now experincing many problems that the UK rxperience from our Muslim community. Rapes, child abuse rings, bombing's and random stabbings. I nearly became a victim myself on 7/7, the only thing that saved me was a fire alarm at Euston Station

Ghordius's picture

letting in 1 million Muslims... in a country that already has 4.5 million Muslims, remember?

neither Ukraine nor Poland nor Hungary nor many others let them in. they all refused Dr. Merkel's proposals of "load sharing". and no, I don't think that will change, and I'm perfectly fine with that. that's sovereignty, too, btw. in fact, in this one point I agree with you. one million never-seen-before aliens, be it blacks or Muslims into a pure-lily-white-and-profoundly-christian country like Poland would be political madness (though... they had way more eastern Jews, once, didn't they?)

and putting all the blame for Greece on Merkel is putting too much on the shoulders of one person. but again, all this "Merkel Bashing" only started when she and President Putin started to disagree, didn't it?

the UK did not just "open it's borders to easterners". it first pushed for the admission of the eastern european countries into the EU... against the grain of many here, on the Continent, me included. particularly because we did not approve of their admission in NATO, and EU membership as a US/UK-pushed "sweeterer"

but they are either our peers or not. in which case, bye bye, UK, we'll keep our peers as long as they want to be our peers

besides, they are White and Christian and Europeans, aren't they? For someone that puts a lot of emphasis on religion, does this not count something? or is it the usual WASPishness, in particular that AS-dislike of Catholics? Guy Fawkes, all of them?

and those child abuse rings... that was Muslim on Muslim violence, wasn't it? with the British police and local councils all keeping their Eyes Wide Shut

you survived, Jo Cox did not. now that's violence too, isn't it? look around, there is an increase of violence in the UK. which kind?

Xena fobe's picture

Only 5% of Germany's "refugees" are Syrian.  It's not rocket science.  The wealthy benefit from immigration at the expense of the poor.  The poor are turned into slaves working to pay for the freebies doled out to immigrants. Immigrants do not flock to nations that lack generous welfare systems.  Like anyone else, immigrants  will not have large families if they must personally foot the bill.

If the main concern was the welfare of the immigrant, western spending would go much further funding economic stimulus programs in the migrant's home land.  Get rid of the ponzi credit monetary system in the west and you could have sustainable and stable populations.  Or give westerners incentives to produce more native kids.

silverer's picture

I like the Left's plan of letting in millions of illegal immigrants from the southern border. They come in, they work hard, they send a lot of US dollars to Mexico. What the "undocumented folks" don't realize is that if they get the citizenship handed to them that they think they "deserve" or simply seek citizenship and finally get it for its perceived "benefits", they are now a slave to the IRS forever. Once things really suck in the US, many will return to Mexico, but the IRS will continue to hound them there, even confiscate their money if they don't report their savings and income. That's how it works folks. They are required under law to file US tax returns until the day they die. And those anchor babies? Automatic IRS slaves. And if the proud new citizens of the US decide to be non-US citizens again, wait until they see what they have to pay to be a non-Ponzi supporter again. That goes for the rest of the family. Do the math. OUCH.

MEFOBILLS's picture

Capital wants low cost labor.  

Immigration is low cost labor.

Capital (money) wants to direct capital (buildings, plant, equipment, land) and labor.  By directing capital and labor, one can make goods as prices.

Goods as prices fetch money from the money supply, to then reward Capital.

 

Capital also owns the press, to then hypnotize you to think IMMIGRATION is good.

Immigration is overwhelmingly bad if it makes the circumstances of the native population worse.  By driving down the labor value of the masses, then immigration is not a net plus, but a net negative.

Some uniquely skilled immigrants can be useful, but that is very small subset.

 

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) silverer Nov 24, 2016 1:57 PM

FATCA. I am guessing they are not teaching this in the public schools of indoctrination. Certainly will not learn about it at most universities unless you are a business or foreign accounting major. The strings of the IRS reach far and wide.

DeeZ_nutZ's picture

Buy Rubles, bitzheez!

unklemunky's picture

Sorry, but the use of the term, bitchezzzzz, in any form immediately indicates.........idiot......and then the rubles thing is the chin strap that hold on the retard hat.