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Former PBOC Member: "The Situation Is Unsustainable. The Longer It Continues, The More Violent And Destructive The Final Adjustment Will Be."

Tyler Durden's picture





 

Yesterday it was an editorial piece in the main Chinese media outlet Xinhua. Today, China brings its message of helpless (for now) fury to the FT, where Yu Yongding, a former member of the Monetary Policy committee of the Chinese Central Bank has just said what everyone who realizes that mean reversions after 30 years worth of a "great moderation" can and will be a nasty, nasty thing, thinks. Namely: "the situation is ultimately unsustainable. The longer it continues, the more violent and destructive the final adjustment will be. " He is referring to the relentless recycling of Chinese trade surplus in the form of US paper which is increasingly looking like it will never get repaid. His chief rhetorical question is key: "The question is: what losses is China willing to bear in its foreign exchange reserves in order to slow the pace of the renminbi appreciation?" And that's the ballgame. Just like in Europe the question is what amount of gross economic loss is Germany willing to sustain in order to backstop Europe's insolvent countries (and with an imminent French downgrade looming, it will be the only country doing so in the form of sole EFSF funding) simply to keep the euro up and running, and its export sector humming courtesy of no return to a DEM, so in China the question now is how much risk is the country willing to take with its US-based paper holdings in order to keep its own export sector moving along courtesy of a weak CNY. Ironically, the longer Germany and China pretend all is good, the greater the impairment of their natural import partners. And in a globalized economy, even having the cheapest (no matter how artificially contrived) currency does nothing if the global economy tanks and import level implode. Alas, it will be too late for Germany and China to do anything about their flawed mercantilist policies at that point, as the third and final depression will be here. And what is the right move? The former PBOC member spells it out: "The danger for China is that it does not learn the right lesson – namely, that now is the time to end its dependency on the US dollar." And therein lies the rub.

Key statements from Yu's FT Op-Ed which everyone should read:

Chinese officials are understandably angry about the irresponsible brinkmanship demonstrated by their American counterparts in recent weeks. Unfortunately, anger counts for little in international finance. The danger facing the US is that after Tuesday’s debt deal any sense of urgency over a dire fiscal situation will dissipate. The danger for China is that it does not learn the right lesson – namely, that now is the time to end its dependency on the US dollar.

 

China is worried about the possibility of a US default for obvious reasons. As the largest foreign holder of US Treasuries, either a default or a downgrade would bring huge losses. Even after this week’s debt deal, however, the risk remains that US debt will continue to grow to the point where its government is left with no option but to inflate the burden away. While there is little China can do about its existing Treasury holdings, it can rethink past policies – and ask both how it fell into this trap, and how it might free itself.

Stepping back, the reason for the problem, known to most who follow international finance:

China has run a current account surplus and a capital account surplus almost uninterruptedly for more than two decades. Inevitably this has led to an accumulation of foreign reserves. It is clear, however, that running these surpluses persistently is not in China’s best interests. A developing country, with per capita income ranking below the 100th in the world, lending to the world’s richest country for decades is not reasonable. Even worse is the fact that, as one of the largest foreign direct investment-absorbing countries in the world, China essentially lends money it borrowed at a high cost back to its creditors, by buying US Treasuries, rather than importing goods and services.

To be sure this is not the first time China has jawboned at the US for taking advantage of its symbiotic Mutually Assured Destruction status :

The Chinese government has admitted that its foreign-exchange reserves have already exceeded its needs. It has tried various measures to slow down the growth of these reserves and protect the value of its existing stock. This has included demand stimulation, allowing the renminbi to appreciate gradually and creating sovereign wealth funds. It has also promoted reform of international monetary systems and the internationalisation of the renminbi. Sadly, none of these has worked. With large capital inflows and a current account surplus, China’s foreign exchange reserves have continued to rise rapidly.

The trade off: at what point does the cumulative loss probability offset CNY depreciation gains:

These policies failed because they did not address the real cause of the rapid increase in foreign exchange stocks, namely state intervention aimed at controlling the pace of renminbi appreciation. The question is: what losses is China willing to bear in its foreign exchange reserves in order to slow the pace of the renminbi appreciation?

His conclusion:

One further factor is that any losses in the financial assets held by China will not be realised until their holders decide to cash out. If the US government continues to pay back its public debt, and China continues to pack its savings into US securities, this game may continue for a very long time. However, the situation is ultimately unsustainable. The longer it continues, the more violent and destructive the final adjustment will be.

 

If there is any lesson China can draw from the US debt ceiling crisis, it is that it must stop policies that result in further accumulation of foreign exchange reserves. Given that many large developed countries are simply printing money (and the recent rumours are that the US might return to quantitative easing) China must realise that it can no longer invest in the paper assets of the developed world. The People’s Bank of China must stop buying US dollars and allow the renminbi exchange rate to be decided by market forces as soon as possible. China should have done so a long time ago. There should be no more hesitating and dithering. To float the renminbi is not costless. However, its benefits for the Chinese economy will vastly offset those costs, while being favourable to the global economy as well.

Naturally, the time for China to strike, if it really means it, is now.

Although the thought experiment of the sheer chaos and market panic that will ensue should China announce it is freely floating the renminbi in the next few hours, is worth the few minutes of daydreaming.

Alas it won't happen now. And certainly not before it is too late.

 


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Sun, 08/07/2011 - 13:10 | Link to Comment Mongo
Mongo's picture

Now, this will be interesting. Will China put their money where their mouth is...

Sun, 08/07/2011 - 13:13 | Link to Comment Highrev
Highrev's picture

Are you getting ready to buy from the dumb money sellers?

 

Sun, 08/07/2011 - 13:29 | Link to Comment qqqqtrader
qqqqtrader's picture

He might want to look at these technicals before he buys...

http://www.scribd.com/doc/61796774/Sp500-Update-6AUG11

Sun, 08/07/2011 - 17:06 | Link to Comment Highrev
Highrev's picture

Nice work and I can say I agree with your main points like the big level 1261 SPX and that it will most likely hold on the first attempt and that the odds favor a retest of the initial lows (once those are known to begin with). That will be a huge level, and the price action at that point, and on the retest will be huge also.

I was a little confused by your comment that the expanding triangle’s E wave rarely gets retraced. By definition it would get fully “retraced” (and more) every time the pattern resolves in a continuation breakout, correct?

Sun, 08/07/2011 - 14:18 | Link to Comment rwe2late
rwe2late's picture

 But China and USA are 'frenemies'.

The relationship is explained here:

http://www.youtube.com/watch?v=IGYAhiMwd5E

 

Sun, 08/07/2011 - 13:14 | Link to Comment bigdumbnugly
bigdumbnugly's picture

is his conclusion anything anyone doesn't already know?

Sun, 08/07/2011 - 13:26 | Link to Comment SlipStitchPass
SlipStitchPass's picture

             "is his conclusion anything anyone doesn't already know?"

That is what everyone here is thinking, but I guess it is how the game works. The big pink Elephant has been in the rood for 15years and now everyone decides to point at it and say " holy crap..there is a big pink elephant in the room". There are alot of things that need to be worked out in the final unwind

- derivatives

- global reserve dollars ( and what happens as they all pour back into the US to buy anything not nailed down)

-debt markets - federal, muni etc

-GSE's

- Pensions

- etc etc.

 

Sun, 08/07/2011 - 13:16 | Link to Comment falak pema
falak pema's picture

Looks lik its gonna be decision time in Eurozone and China with this official knuckle rapping the US has just received, indicating that the Markets now esteem the US administration is totally toothless in being able to bite its own bullet, solve its own debt creation. 

Big, big, moments of global game change in coming months. We are at the brink. And its China and Eurozone that decide their own fate and that of the current world capital markets.

Sun, 08/07/2011 - 13:42 | Link to Comment OpenEyes
OpenEyes's picture

It's mind-boggling how many crisis are erupting at once!

US downgrade

Euro crumbling?

China sweating that either, or both, of those will unmask their own problems

Swiss central bank interventions

Japanese central bank interventions

And these are just what we are seeing on the surface.  Doesn't take into account the huge derivatives issue lurking in the darkness.  Doesn't include the boiling cauldron of MENA.  

I agree with you re: "Big, big moments of global game change in coming months".. might even be less than months.

I also find very interesting the fact that there seems to be NO consensus among even the most astute observers as to exactly what the implications are going to me come market openings tonight and tomorrow!  I've been reading virtually every article and every comment here at ZH, over at Turd's, Naked Capitalism, you name it, and have yet to really distill a solid prediciton.  This tells me that we really are in un-charted territory!

Hang on to your hats folks.  

Sun, 08/07/2011 - 14:36 | Link to Comment InconvenientCou...
InconvenientCounterParty's picture

I predict Yuan de-peg within 3 years and gold to 3000 USD within 5. I'd prefer that no one was prepared except me, but it looks as though some are seeing the support gathering for this setup. QE3 puts us back to 1971.

Chances of a Chinese expansioninst pivot in the next 20 years is 100%. Taiwan is small potatoes. Iran in a hurry to develop nukes? The question you have to ask yourself is why wouldn't they?

Sun, 08/07/2011 - 13:15 | Link to Comment oldmanagain
oldmanagain's picture


"Middle East shares tumbled, sending Dubai’s index down the most since February, after Standard & Poor’s cut the credit rating of the U.S. for the first time and amid rising concern the global economy is faltering.

Emaar Properties PJSC (EMAAR), developer of the world’s tallest tower, slumped 5.3 percent. Arabtec Holding Co. (ARTC) dropped the most since March after it said second-quarter profit fell 74 percent. The DFM General Index (DFMGI) lost 3.7 percent, the most since Feb. 28, to 1,484.31 at the 2 p.m. close in Dubai. The measure has plunged 12 percent from this year’s high in April, entering a so-called correction. Israel’s TA-25 Index slumped 6 percent, the most since November 2008, at 3:51 p.m. in Tel Aviv.

“We’re playing catch-up and trying to anticipate and price in the response to the downgrade by global markets tomorrow,” said Julian Bruce, equity sales head at EFG-Hermes Holding SAE in Dubai. “The impact on stock prices that we’re seeing reflects the feelings of uncertainty” about global growth, he said."

Sun, 08/07/2011 - 13:16 | Link to Comment Boilermaker
Boilermaker's picture

The Chinese are shitting thier pants.  What to do with 200,000,000 uneducated young males without a slave wage jobs.

Good luck with that.

Sun, 08/07/2011 - 13:29 | Link to Comment Lone Deranger
Lone Deranger's picture

What to do:  First assign blame - that's easy for the Chinese ruling party.  It will of course be the fault of the US. The now horrible situation should easily fill the ranks in the PLA with millions of new eager soldiers.  The entire country will be ready to get back what they feel belongs to them.  I'm sure that Iran and Pakistan will somehow end up being allies, to take out the "evil beast" lurking in the west.

 

Sun, 08/07/2011 - 13:35 | Link to Comment Boilermaker
Boilermaker's picture

Agreed.  Now, just march that army across the Pacific and get us.  Good luck w/ that.  The US still maintains a massive advantage in air and naval power.

Without the ability to invade us, they are fucked.

Sun, 08/07/2011 - 13:48 | Link to Comment Lone Deranger
Lone Deranger's picture

For sure we won't be seeing any Chinese flags being planted in Seattle or LA anytime soon.  I do think a more plausible course of action is to get the US out of their backyard - i.e. Iraq, Afganistan, and possibly the Middle East in general.  They might possibly help the the Iranians with their wet dream to occupy Israel.  There are all sorts of possibilities here...

Sun, 08/07/2011 - 15:23 | Link to Comment Chuck Walla
Chuck Walla's picture

Why fight for them (except as population control) when they can buy them outright?

Sun, 08/07/2011 - 14:01 | Link to Comment karzai_luver
karzai_luver's picture

You are fighting the wrong war. Don't feel bad , so are 99% of the rest of the lazy sheeple.

 

Your "massives" will be as useless as they are in Afg.

 

6 out.

 

Sun, 08/07/2011 - 15:06 | Link to Comment Silver Dreamer
Silver Dreamer's picture

You don't need to invade something you do not plan to occupy. China has plenty of power to destroy us without touching foot on American soil.

Sun, 08/07/2011 - 13:52 | Link to Comment rwe2late
rwe2late's picture

What to do:  First assign blame - that's easy for the US ruling parties.  It will of course be the fault of outsiders who "hate us for our freedoms". The now horrible situation should easily fill the ranks in the Pentagon with plenty of new eager soldiers.  The entire country will be ready to get more of what they feel belongs to them.  I'm sure that Iran and Pakistan will somehow end up being part of an evil axis, allegedly eager to take on the self-appointed "global policeman" lurking just about everywhere.

Sun, 08/07/2011 - 15:25 | Link to Comment Chuck Walla
Chuck Walla's picture

No, it will be the Tea Party, 60 guys who just got there in January will be blamed for 50 years of excess - and people will believe it and push that line.

Sun, 08/07/2011 - 15:36 | Link to Comment Chuck Walla
Chuck Walla's picture

I just put a deposit down on a brand new Porsche and mentioned it on Facebook. 

I said, "I can't wait for the new 911 to arrive!" 

Next thing I knew, 4000 Muslims added me as a friend.

Sun, 08/07/2011 - 15:40 | Link to Comment Flakmeister
Flakmeister's picture

Bada bing.... rim shot...

Sun, 08/07/2011 - 13:38 | Link to Comment Stuck on Zero
Stuck on Zero's picture

200,000,000 uneducated young males without wives and girlfriends!

Sun, 08/07/2011 - 13:43 | Link to Comment Captain Benny
Captain Benny's picture

Sounds more like 200,000,000 educated young males to be without wifes and girlfriends!

Sun, 08/07/2011 - 13:17 | Link to Comment alien-IQ
alien-IQ's picture

Isn't there a remarkable similarity between the events that have unfolded in the last 48 hours, and particularly the above statement by the PBOC, and the events theorized in this video?

The Day the Dollar Died
http://www.youtube.com/watch?v=2N8gJSMoOJc

Sun, 08/07/2011 - 14:28 | Link to Comment sqz
sqz's picture

Thank you very much!

This puts into video effectively what this report details statistically:

http://www.shadowstats.com/article/hyperinflation-special-report-2011

Shit's getting real ...

Sun, 08/07/2011 - 13:17 | Link to Comment slaughterer
slaughterer's picture

China places a lot of faith in ratings.  Their reaction will be knee-jerk selling of dollars.  It might be the stupidest reaction from a ROI perspective, but they will be selling dollars and T-bills as quickly as possible.  

Sun, 08/07/2011 - 13:22 | Link to Comment BKbroiler
BKbroiler's picture

This is the exact opposite of the "how China ate America's lunch" article a few weeks back.  Is the China the evil genius that gutted the us economy or the sucker left holding the bag of AA+ hot air?

Sun, 08/07/2011 - 13:24 | Link to Comment falak pema
falak pema's picture

very good rhetorical question!

Sun, 08/07/2011 - 13:28 | Link to Comment Azannoth
Azannoth's picture

USA and China are like 2 Siamese twins playing Russian Rulete against each other

Sun, 08/07/2011 - 14:05 | Link to Comment karzai_luver
karzai_luver's picture

america puked it's guts out all over china again and again.

 

and then resumed porn surfing and more beers/burrito.

 

good night.

 

Sun, 08/07/2011 - 14:18 | Link to Comment TaxSlave
TaxSlave's picture

This is the exact opposite of the "how China ate America's lunch" article a few weeks back.  Is the China the evil genius that gutted the us economy or the sucker left holding the bag of AA+ hot air?

Well that article was a bunch of mercantilist hot air itself.

Viewing 'China' or 'The U.S.' as a single entity obscures the fact that mercantilist policies always favor fascist corporate government at the expense of the hapless citizenry.

China is in bubble territory, and is ill-prepared to weather a collapse of their bubble coupled with a simultaneous loss of export customers.

Serves them right for inflating along with the U.S. in order to get market share.  Except perhaps maybe the unwitting citizen of China is blameless for wanting to work and feed his family.

The hapless citizens on both sides of this mercantilist game lose out when monetary policy is used as a trade war weapon.

Things are going to get bad on both sides of the pond.  Hopefully the people on both sides will refuse to be used as tools by their mercantilist masters.  History shows that there is not much hope in this regard.  People are taught that freedom doesn't work, every loss caused by the depredations of the predatory fascist corporate state is always blamed on not enough central control, and eventually legions are sent off to die in order to perpetuate that control.

Arguments over which policies to enforce, who should inflate faster, etc. all serve to focus the argument on how much control is needed, and how to exercise that control.  Accepting that set of blinders effectively blocks out the fact that freedom is not even considered.  So the slaves willingly toil for their masters.  And after their wealth is destroyed, their jobs lost, their homes lost, and hunger threatens, they will be all too willing to pour all their effort and might into the military-industrial machine and begin killing with gusto.

The slave-masters on both sides push the buttons from the comfort of their ivory towers, secure in their knowledge that the dupes will never catch on to the game.

A boot, stamping on a face, forever.

Sun, 08/07/2011 - 13:22 | Link to Comment Transitory Disi...
Transitory Disinflation's picture

doom doom

coming soon

taking pm's

too the moon.

 

au, ag

wait and see

apmex is closed to thee

increasing profits for all too see.

 

like the titanic

there will be panic

then it sank

thanks bernank.

 

sack the geithner

he tell's thee lies

off with his head

were the cries.

 

riot riot

hear the disquiet

when is it coming, nobody knows

all we see is the infinite fire hose.

 

get ye popcorn, see the show

this fiat ponzi is about to blow

grab your pm's, grab your food

Monday morning will set the mood.

 

 

 

Sun, 08/07/2011 - 13:32 | Link to Comment Hulk
Hulk's picture

You're going to scare the children...

 

Sun, 08/07/2011 - 13:20 | Link to Comment working class dog
working class dog's picture

China and the US commerce department with the corporate elite are responsible for the present situation. You tell china to go to hell!! They have been manipulating currency and enslaving their people ever since the US saved their sorry asses from the Japenese.

 

Now when their piracy of our technology and methodology is in place they want to bail out. I guess they have learned thier lessons well. Lets see how they keep the billions of Chinese under thier boot over the  next 50years, I dont think so. My dad always told me when I asked him as a child how is it the US is the big dog? He said we are small in number but we do things together better as a nation than anyone else. Of course when my dad grew up and lived in this great country we had a decent educational system that produced critical thinkers, not morns who care for a gubbament entitlement to live. I for one want to get some of the money the gubbament took from me in taxes and social security. I for one despise the extremists on both ends of the US political spectrum who are trying to do what Hitler did, take control of the govt thru the use of taking the debt talks to push their fucked up agenda.

Sun, 08/07/2011 - 13:23 | Link to Comment Boilermaker
Boilermaker's picture

+$14.6T

Sun, 08/07/2011 - 13:22 | Link to Comment DormRoom
DormRoom's picture

So was Friedman wrong?  Is China the case study in which capitalism does not lead to democracy.  So will American capitalism mutate into its Chinese strain, implying a one party autocracy in which our liberties are slowly eroded?

 

Oh right, America is a one party system, but its inefficiency lies in the fact that it spends all that time, and resource, convincing the electorate, it's a two party system, unlike the Chinese.

 

Chinese capitalism: +3 trillion American capitalism: -3trillion

Sun, 08/07/2011 - 13:49 | Link to Comment besnook
besnook's picture

friedman is as big a quack as krugman.

 

japan is technically a democracy even as the same party has governed it since post war but it's economy is centrally planned. germnay is essentially the same. russia is centrally planned period but has managed to become one of the strongest economies in the world compliments of oil and gas and of course china is china.

india is a democracy but closer analysis says that democracy has actually hindered it's growth. while that is admittedly a good thing it points out the fallacy of the friedman argument. a centrally planned economy works if the planning focus is dedicated to the welfare of the country in aggregate and allowing micro economies free range in the local domestic economy.

Sun, 08/07/2011 - 14:07 | Link to Comment karzai_luver
karzai_luver's picture

you got it.

if it ..........it's a duck,errrrr golden goose.

 

Sun, 08/07/2011 - 14:29 | Link to Comment TaxSlave
TaxSlave's picture

a centrally planned economy works

Uhh, yeah.  Here they are, crumbling before your very eyes, on a scale never before witnessed.

You want your freedom but figure everyone else needs to be controlled in order to secure an advantage for you.  Right.

Here, I'll help you out with some more intellectual ammunition.  Take it, and go forth and multiply:

[Adolf Hitler on Nazism and socialism:] “Each activity and each need of the individual will thereby be regulated by the party as the representative of the general good. There will be no license, no free space, in which the individual belongs to himself. This is Socialism—not such trifles as the private possession of the means of production. Of what importance is that if I range men firmly within a discipline they cannot escape? Let them then own land or factories as much as they please. The decisive factor is that the State, through the party, is supreme over them, regardless whether they are owners or workers. All that, you see, is unessential. Our Socialism goes far deeper . . . .

“[T]he people about us are unaware of what is really happening to them. They gaze fascinated at one or two familiar superficialities, such as possessions and income and rank and other outworn conceptions. As long as these are kept intact, they are quite satisfied. But in the meantime they have entered a new relation; a powerful social force has caught them up. They themselves are changed. What are ownership and income to that? Why need we trouble to socialize banks and factories? We socialize human beings.”

 

Sun, 08/07/2011 - 13:20 | Link to Comment wang (not verified)
Sun, 08/07/2011 - 13:40 | Link to Comment scratch_and_sniff
scratch_and_sniff's picture

Hey wang, how do you do that on a day to day basis?

Sun, 08/07/2011 - 13:21 | Link to Comment midtowng
midtowng's picture

The Yuan readjustment is so slow it is barely happening. At this rate China will never decouple in time.

Sun, 08/07/2011 - 13:21 | Link to Comment Peter K
Peter K's picture

You can throw Japan and the rest of Asia and most of Euroland in to the Mercantile bag. As to the bad position of the US, actually it's quite good in the sense that it can slap a 25% to 50% trade tariff on all imports and resolve their trade balance problem overnight. The reason for the present global recession is the boycott of the US consumer and the non existence of the Chinese counterpart.

Sun, 08/07/2011 - 13:24 | Link to Comment Boilermaker
Boilermaker's picture

+$14.61 T

Sun, 08/07/2011 - 13:31 | Link to Comment falak pema
falak pema's picture

A huge paradigm change you are pointing to there : USA goes 100% protectionist and guts the global economy. Nobody is considering that as a viable alternative...and that makes me wonder...To make it work, it means sacrificing the US oligarchs and their global banks and corporations. Looks difficult with the current ruling class. But it may be down the road if the hard core Tea Party makes headway...

Sun, 08/07/2011 - 13:48 | Link to Comment MsCreant
MsCreant's picture

Because of our dependence on others for oil, I don't think this will work.

Sun, 08/07/2011 - 14:08 | Link to Comment falak pema
falak pema's picture

the springs are really springing in your head!

Sun, 08/07/2011 - 13:40 | Link to Comment Stuck on Zero
Stuck on Zero's picture

You can't make this up.  Obama gave a speech yesterday in which he stated that the way to get the economy moving was to sign four new trade agreements and extend unemployment benefits.  What is this character smoking?

Sun, 08/07/2011 - 14:28 | Link to Comment 11b40
11b40's picture

This is the drum I have been beating for a long, long time.  We have had Main Stret American businesses trying to compete with mercantilist foreign governments, and being crushed now for decades.

It is just dumb for us to have a society that demands so much from business (zoning & building codes, healthcare, retirement, min. wages, environmental regs, etc,etc.), yet allows unfettered foreighn competition from nations that require little or none of the same without financial off-sets at the border (tariffs).

We all know it, too. 

Sun, 08/07/2011 - 13:24 | Link to Comment Lucius_Junius_Brutus
Lucius_Junius_Brutus's picture

I sense a disturbance in the force.

Sun, 08/07/2011 - 14:17 | Link to Comment DeadFred
DeadFred's picture

For a month and a half I've been sensing that disturbance. China is planning a takedown, and they now have the cover. I have nothing to go on but gut feelings, and my gut has mixed reviews for accuracy. It told me DSK was a set-up but it also told me there wouldn't be a debt ceiling deal. To mix metaphors its telling me right now that China is about to throw a monkey wrench into the machinery and knock the Fed and ECB off their net-less high-wire act. Time will tell, but my money includes some massively OTM puts, or at least they used to be massively out of the money.

Sun, 08/07/2011 - 13:24 | Link to Comment Debtless
Debtless's picture

This story has no happy ending.

Sun, 08/07/2011 - 13:24 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Ah but don't underestimate the will of the plutocrats to maintain the status quo, even if it does mean decimating the middle class and the old guard countries (the US is now in that group). Right now they're huddling in virtual groups around the world, urging one more globally-coordinated 2008-style rescue on an even more massive scale (because it's not just banks this time). Of course they're also stocking their own gold, ammo, food and water in the meantime. 

Sun, 08/07/2011 - 13:40 | Link to Comment Implicit simplicit
Implicit simplicit's picture

Ponzi Greed
What u saw was right
but just in near sight.
they rigged a time warp
over banker's tea and tarp.
What goes around comes around
and then heads back down.
Pig Ponzis built by hog clowns
what’s that face behind that mask?
just another banker. Why you ask?

Sun, 08/07/2011 - 13:31 | Link to Comment Temporalist
Temporalist's picture

So ZHers now have a new catchphrase:

"Final Adjustment!"

Sun, 08/07/2011 - 13:33 | Link to Comment falak pema
falak pema's picture

its the prenuptial stage to final solution...

Sun, 08/07/2011 - 13:31 | Link to Comment MsCreant
MsCreant's picture

Please keep in mind I am not a trader so don't whack me too hard for this question if it is a dumb one. It seems to me that they could position themselves in such a way that they could start to dump their dollar holdings and at the right point, decouple from the dollar peg and watch their own currency rise. Is it possible that the rise could make up in stored value what they lose in the dollar holdings? Could they even profit from it? It seems if you timed it right, it could become a seriously wound spring that once sprung...

Sun, 08/07/2011 - 13:34 | Link to Comment falak pema
falak pema's picture

"it could become a seriously wound spring that once sprung..."

Spring that sprung...I see a hidden message there.

Sun, 08/07/2011 - 14:26 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

yep,

and hi, ms_C!

even the former PBOC member, known as yuYongding, sez:

"These policies failed because they did not address the real cause of the rapid increase in foreign exchange stocks, namely state intervention aimed at controlling the pace of renminbi appreciation."

as tyler points out several times, really:  time is of the essence. 


yu:  "(china)
has also promoted reform of international monetary systems and the internationalisation of the renminbi. Sadly, none of these has worked."

awwww.  poor china.  they were given millions upon millions X10 of our jobs by the internationalists and their politicians, and they still can't do anything but look-see that The End =  "the more violent and destructive the final adjustment will be"

 
b/c (sob) they have more than enuf "reserves" which, of course, they coulda been selling for more than they paid for them (the US variety, at least) right up thru last week, too!
doesn't china have a fiat currency?  doesn't the PBOC have a bal. sheet?  which is expanding?  do they not "print" their money, also? what don't they understand here? 

if you don't like our IOUs, you can sell them (now) at a profit and then you wouldn't be forever fuking whining about "not getting paid back" or getting paid back in some kinda fiat they don't think is worth much, anymore. 

almost everything we "read" about china is "disinfo",  just as from japan, or from the USSAA, or NATO, or the EU. 

perhaps, instead of running around "trying" this and that and, with wondrous fanfare, telling all how things "should" be,  they might have done better for themselves by just managing their own accounts a bit more intelligently, instead of spending literally decades trying to out-bullshit some freaking awesome world-class bullshitters. 

Sun, 08/07/2011 - 14:45 | Link to Comment MsCreant
MsCreant's picture

Me likes the pi-rat. Thanks for your response.

If all fiat is acknowledged as worthless at the same time...

The world economy is starting to look like a bigger organized faith based religion than Christianity or the Muslim faith. ;-) What shaky ground we stand on.

Sun, 08/07/2011 - 13:32 | Link to Comment Bam_Man
Bam_Man's picture

Yu Yongding

Is that really his name or is this some kind of a joke?

Sun, 08/07/2011 - 14:20 | Link to Comment DosZap
DosZap's picture

Bam_Man

 

Yu Yongding

Is that really his name or is this some kind of a joke?.

Yes, and his cousin is Long DucDong

 

Sun, 08/07/2011 - 15:30 | Link to Comment Vendetta
Vendetta's picture

You should have read what Phuk Yu Suk Mi wrote /snark

Sun, 08/07/2011 - 13:32 | Link to Comment besnook
besnook's picture

then the question is where is the best place to deploy an increasingly worthless investment.  could they help germany back the euro? worthless dollars/worthless euros- what is the difference?

the renminbi is already accepted as the contract currency for almost all of their trade partners ex the west. if europe went along with it they may be able to safely decouple from the dollar?

i think part of the reasoning behind the rating change is to force china to decouple from the dollar. but i also think it is the rmb that gives value to the dollar and not vice versa so a decouple would appreciate the value of the rmb because the value of the dollar would drop like a rock.

Sun, 08/07/2011 - 13:35 | Link to Comment JW n FL
JW n FL's picture

 

 

 

Once again!

 

China 1,200% Leverage before the ink dries on the notes.

United States 120% Leverage before the ink dries on the notes.

 

Just becuase China can service their 1,200% Debt Building Cities that NO ONE LIVES IN! does not mean they are a Tangible Threat.

 

Who cares what China thinks or says!

China is MORE Fake than the United States! by a 1,000 Fucking %!

Sun, 08/07/2011 - 14:45 | Link to Comment 11b40
11b40's picture

Thanks, JW, for the levity.  Some folks don't understand, and others don't lsten very well.

China has a billion hungry mouths to feed and a very marginal economy.  Plus, they are starved for raw materials and arable land.

We, on the other hand, have 1/4 their population, and our economy is 14 times larger.  We are also resource rich, and if we had to, with some adjustments, the USA could be self sustaining.  Very few nations can do that.

And for all the chicken littles out there, here is a little more to consider.  Our military is unrivaled.  Period, end of story.  No country or group of countries poses a serious military threat.  On top of that, our neighbor to the North is also very resource rich with a realatively sparse population that is friendly.  Our neighbor to the south is poor, but energy rich, and can provide a great source of labor.

Do we FACE rough times ahead?  Yes, we do.  Have we screwed up the wonderous thing that was America?  Yes, we have.  Will we weather this shistorm better than others?  Yes, we will.

Independent Contractor

Sun, 08/07/2011 - 17:33 | Link to Comment JW n FL
JW n FL's picture

I think.. or should I say I Pray to be more accurate! that "We the People" can rid ourselves of the Lobby Whores and the Lobby! if "We the People" can pull that off! then we can print our own money http://www.youtube.com/user/bstill3?feature=chclk and elect (not college electorate) http://www.realclearpolitics.com/epolls/maps/obama_vs_mccain/ our very own next or maybe the next after the next President.

 

The Lobby Owns Us! and You might not like who owns Us!

 

God Bless and Good Luck Brother!

Sun, 08/07/2011 - 22:39 | Link to Comment Nels
Nels's picture

Like Rome & Constantinople, if we lose, it will be by rot within.  China's problem is to disengage from their winning economic fight without losing too much.  Their problem is getting the timing of final economic victory right.  We were beyond stupid to get so in debt, much less to folks who are definitely not our friends.

Should the FRN lose reserve currency status, how may carrier groups will we be able to maintain?  By 2015 or sooner, some folks estimate that our debt payments to China will cover their entire military expense.   Our military is now a depreciating asset, and we are not maintaining it well.  And it doesn't matter as much as it used to, as folks have figured out ways to avoid it.

On the military front, our strengths and weaknesses are well known from Viet Nam to Iraq and Afghanistan.  Nobody is going to start a big war, they are going to look at bringing a civil war type of conflict to the US by immigration/infiltration, while draining it in foreign engagements.  It won't help us if the crazies in Iran decide to start the end-of-days war that they are looking forward to.

A billion mouths to feed might be a problem for China.  The trouble to us is that the way governments often try to solve that kind of trouble is a search for Lebensraum.  And we are probably stupid enough to sell them the Central Valley of California, complete with water rights.  Luckily, they are busy buying up Africa right now, which is still cheaper.

We have some moats, like the oceans, the military and friendly neighbors.  Both missiles and money cross the ocean faster and easier than battleships.  And the population of Mexico isn't that friendly.

We won't weather this storm without a change in our way of thinking.  The story goes that while the Ottomans were pounding at the gates of Constantinople, the Byzantine leaders were arguing theological propositions rather than spending fulltime on preparing a last ditch defense.  I don't know how true that story is, but it rings true when compared to Boehner and company trying to argue that going from $8T in new debt to only $7T is a cut in spending.

Sun, 08/07/2011 - 13:41 | Link to Comment nevadan
nevadan's picture

At some point of confrontation between the US and China, say perhaps in the Straights of Taiwan or the Yellow Sea, the liability China holds in the form of US debt will become a weapon.  The cheapest way for a strategic victory will be to destabilise the US economy by dumping treasuries.  If that scenario comes to pass the US will have to push back or back down.  There doesn't seem to be a good outcome for either choice.

Sun, 08/07/2011 - 14:42 | Link to Comment TaxSlave
TaxSlave's picture

Ha, the Fed already holds more treasuries than China.

If China starts dumping, the Fed will step in and slurp them up without a second thought.

So what if it comes at the expense of your future net worth?  Your labor is already pledged unto eternity to pay back all that debt.  To money-printers.  Muhahaha!  And with your currency debased into a fraction of nothingness, you won't be able to afford to buy their cheap crap anymore.  That will be 'good for domestic industry and exports'.   Muhahahaha!

Sun, 08/07/2011 - 15:10 | Link to Comment nevadan
nevadan's picture

China dumps>Fed slurps>others dump>Fed overwhelmed>dollar collapse>chaos.

Sun, 08/07/2011 - 13:43 | Link to Comment Diogenes
Diogenes's picture

If America adopted an austerity program and balanced the budget trade with China would be drastically cut and the Chinese would be in trouble.

If America adopts an inflationary program Chinese jobs are safe but the money they get paid in drops in value, and the Chinese are in trouble.

They are part of the same ponzi scheme and there is no way out that does not involve a disaster for both economies.

Incidentally the Chinese do not have to depend on the US to make the decisions. They can have either of the above scenarios by manipulating the value of their own currency. So far they have chosen the second.

Sun, 08/07/2011 - 13:51 | Link to Comment ISEEIT
ISEEIT's picture

I'm just a trader. I don't really give a hoot about who is right or wrong. I love action and violtilty. I play on a 10, 30 second and 1 minute window, but always aware of the 15, 30 and 0ne hour history. Lately it is just determining risk on/off to make a quick couple of bucks. Only an idiot (maybe me?) would engage this sport without nurturing an awareness of longer term trends. You don't want to get caught flat footed.

So the biggest potential market mover is does the FED (ours) do another fiat drop/or not? I adore and respect ZH. The Tylers are killer. Not certain though that they are correct regarding the (supposedly) inevitable QE3.

I'm hair triggered for one or the other because the move either way will be dramatic. I'm leaning no imminent QE3. The big boys could make a killing off a USD surge. Temporary as it would be I believe that might be an irresistible play for them. Hit 80 or so then plunge.

Something to consider?

http://globaleconomicanalysis.blogspot.com/2011/08/idea-china-to-stop-bu...

I understand that many of you don't much like Mish. He is a bit of an arrogant ass but he is pretty wise as well. EPJ is hardcore Austrian and sees a surge in m3 floating the bubble a bit soon (for a while). The timing would be politically beautiful for the regime. Just points to consider.

Sun, 08/07/2011 - 14:11 | Link to Comment falak pema
falak pema's picture

you sound like a chess player playing speed chess, 1 minute flash blitzkriegs! wow! winner takes all, until he loses all+2!

Sun, 08/07/2011 - 14:32 | Link to Comment DeadFred
DeadFred's picture

Five days up past 80, four days back down. The big boys will shear a lot of sheep.

Edit: just my gut talking again

Sun, 08/07/2011 - 13:53 | Link to Comment karzai_luver
karzai_luver's picture

Knock Knock who that .???????

 

Tha Bear , bitchezzzzzz.........

 

He who control energy will win, especially if he could shutdown yerp, yep.

 

Who won that war again, fatass????

 

 

Sun, 08/07/2011 - 13:56 | Link to Comment tradewithdave
tradewithdave's picture

"... the more violent and destructive the final adjustment will be." 

I thought that was the whole point of a reset switch.  It's not a mood ring, or a dimmer switch, it's a hard reset.  Like when you pull out the paper clip and poke into that tiny little hole on the back whatever it is you're resetting and then you hope.  There's also those red ones on the bathroom wall when your wife tries to use the blowdrier and the curling iron at the same time.  It only takes a second. 

Dave Harrison

www.tradewithdave.com

Sun, 08/07/2011 - 18:31 | Link to Comment KowPie
KowPie's picture

"...when your wife tries to use the blowdrier and the curling iron at the same time."

That seriously pisses me off when she does that. It's always when I'm at a critical juncture on my computer (plugged into the same branch).

Sun, 08/07/2011 - 14:00 | Link to Comment Lone Deranger
Lone Deranger's picture

Okay, now the Chinese Military are really pissed!

http://www.youtube.com/watch?v=qtWNi1eF3Hw&feature=fvsr

Sun, 08/07/2011 - 17:36 | Link to Comment JW n FL
JW n FL's picture

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Sun, 08/07/2011 - 14:02 | Link to Comment Kimo
Kimo's picture

""The question is: what losses is China willing to bear in its foreign exchange reserves in order to slow the pace of the renminbi appreciation?"

Wake up, its water under the bridge.

Sun, 08/07/2011 - 14:05 | Link to Comment Flakmeister
Flakmeister's picture

Just a little food for thought....

The interest on Chinese holdings of treauries pays for ~30% of their oil imports...Since the Chinese are stuck with those holdings, how do you think they should proceed? Any actions that undermine the pricing of oil in dollars is not in their best interests.

Sun, 08/07/2011 - 14:10 | Link to Comment karzai_luver
karzai_luver's picture

and what is the USA%.?

 

Ha,instant crash nose down into a small hole.

 

Sun, 08/07/2011 - 14:17 | Link to Comment Flakmeister
Flakmeister's picture

Figure out what fraction of US soveriegn debt is held by Americans...I can't do everything for you.

BTW, the equivalent number for Japan is also about 30%.

As it currnently stands, the interest on US debt is enough to buy ~25% of the oil that is on the open market. At current rates of debt growth and the decline in World Net Exports, 100% is reached in 2022 or so...

Sun, 08/07/2011 - 14:15 | Link to Comment falak pema
falak pema's picture

You're pointing to a creditor's club of USD holders; who have one aim in common; let the USD slide as this is the FED's aim, but keep their supply/demand relation in an acceptable ball park. It's all related to how deep will be the projected structural correction of risk assets. When  and how much? ....are now the questions.

Sun, 08/07/2011 - 14:38 | Link to Comment Flakmeister
Flakmeister's picture

Well put.... Price to Book could stay constant with both numerator and denominator getting trashed...Being long PM and Energy is the only way to go, but it will be volatile...

Sun, 08/07/2011 - 14:24 | Link to Comment youngman
youngman's picture

But China has income......the USA does not....

Sun, 08/07/2011 - 15:04 | Link to Comment falak pema
falak pema's picture

If USA accepted hard cheese for ten years, paid its debts, reset its targets in a real free market, innovative economy w/o oligarchs, it would be back on  its feet in ten years. Hey, Japan lost twenty and has now fallen into the Fuku hole for not having reset its mind set. Germany lost ten years to recover E germany into fold.

What is ten, fifteen years in the life of a nation? A drop of blood!!

Its still a powerhouse of innovation. It has to get out of its current hubristic, criminal mind set! Period.

It can be done. It must be done! Start the rehab britches!

Sun, 08/07/2011 - 15:04 | Link to Comment boiltherich
boiltherich's picture

Dear Mr. Dongying:  Tell me again about the dollar/yuan peg and how wide is that trading band?  You sell your peasants labor dirt cheap and then presume to lecture your customers?  You poison your (and our) environment and yet it is somehow our fault?  You seem keenly aware of what is unsustainable in others, ever tried looking in a mirror dude?  You dare to issue thinly veiled threats of destruction and violence?  You might have a billion soldiers at your beck and call but you keep fucking with us in international waters and we will see how much good they do you.  Bring it on asshole. 

Sorry dear readers at ZH, had to vent that, better out than in.  I am disgusted with our government but these sanctimonious Chinese dickwads just make me want to heave. 

Sun, 08/07/2011 - 15:27 | Link to Comment glenlloyd
glenlloyd's picture

a house of cards built on shifting sand

Sun, 08/07/2011 - 17:21 | Link to Comment Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Break the peg comrades. China needs its own monetary policy ...

Wed, 09/14/2011 - 05:06 | Link to Comment chinawholesaler
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