Hi CB, yup, the HKD is pegged somewhat solidly to the USD. For every 7.8 HKD in circulation, there is at least 1 USD in the HK government's Exchange Fund. The HK monetary authority mobilized this fund in 1998 to defend the peg, attack the hedge funds, and buy HK blue-chip stocks. You saw the result of hedge surprise, and double-speak US media (Time/WSJ) subsequent transformation of Soros from villain to hero. In any case, the financial terrorists (not my term, but US ally Mahatir's) were crushed, thanks to the fortunate accident that happened in Russia, blowing up LTCM, forcing rate cuts and liquidity deluge.
The Exchange Fund is also the fund that Mahatir of Malaysia wish he had so as the protect Malaysia from rapacious offshore, mostly US backed and Caribbean based, financial terrorists.
Now, according to the newspaper spin, given recent US experience with financial terrorism centered around California electrical power industry, and geo-political terrorism soaked through the entire fabric of the world, the US government is accepting Mahatir's warning that the majority must be protected from the minority, and in so doing, rules must be bent, until broken if necessary, as judged by the leaders.
How times have changed:0!
<<No wonder you get so nervous about the dollar>>
I am getting less nervous about the dollar as time goes by, with increased allocation to non-USD currencies, physical gold, gold and platinum mining shares.
I cannot escape the coming USD carnage completely, or avoid the Japanese debt-withdraw tsunami, and certainly not the Chinese manufacturing deflation storm.
I have substantial HKD denominated real estate holdings and 100% USD denominated active income. My clients are ultimately, as the entire world, financed by Japan savings. I live on the doorstep of deflation central. I am just waiting for the killing, deluging, and trampling.
But I sure as heck will try to escape a little bit. Buy physical gold.
When the USD breaks, snaps, crumbles, or otherwise violently diverges from norm, as opposed to gently settles to another exchange rate, SE Asia, Taiwan, Korea will be in deep fertilizer given their consequential reduction of export to the US, and their loss of US-bound export share and manufacturing capacity over time, to China.
I believe the Chinese RMB will be tightly embracing the USD as HKD is, especially when the USD starts to devalue.
When the USD was appreciating, the RMB was kept in toll as an obligation to China's Asian neighbors, at US encouragement. When the Japanese were mouthing large-step devaluation of the Yen, China warned of consequential RMB devaluation as response, prompting then Treasury Secretary Rubin to encourage the Tokyo crowd to temper Yen devaluation.
The connected world is dangerous, but may be not more so than disconnected world. I simply do not know.
I am guessing that the US government will soon ask China to revalue the RMB against the USD on behalf of Asia ex-China, and China will do nothing of the sort.
I do not know how the script will actually play out, and thus my caution to those who think they know.
Chugs, Jay |
