Hello JW,
<<we in the USA will demand two things
1. continued purchase of USTBonds
2. revaluation of YUAN upward by 20-30%>>
I believe a revaluation of the Yuan will result in larger import of basic material stockpiles in China (gold, oil, copper, ...) and larger FDI out of China for oil/gas/forests and whatever. I have difficulty picturing a revaluation of the Yuan without opening capital account, but then I suppose the Yuan was devalued in the absence of open capital account.
<<Continue purchase of USTbonds>> ... is a tough one, given what Bernanke had to say, but is none-the-less still happening because the US has not closed its borders to trade yet. I can picture major protectionist moves in the US in 2003/2004, and when it happens, the usual stuff happens ...
The Hong Kong Monetary Authority (HKMA) will probably have to buy more USTbonds because their 20% of reserve allocated to Euro had appreciated so much that they must rebalance, as HKD is still pegged to the USD.
Should China want to devalue the Yuan alongside the USD, they too may have to buy/sell USTBonds and buy Euros, depending on current balance.
Should Bernanke want China to revalue the Yuan, and China agrees, China may have to (a) sell the USTBonds, and Bernanke may have to, yikes, buy Chinese govt bonds.
It is a twisted world where money is not specie and cash is paper:0)
Chugs, Jay |
