Heinz Blasnik- Views You Can Use Message Board

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Strategies & Market Trends : Heinz Blasnik- Views You Can Use

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To: Box-By-The-Riviera™ who wrote (3102)	7/22/2003 11:50:27 AM
From: Wyätt Gwyön	Read Replies (3) of 4904

will they unpeg? what leverage does anyone have to force them? their large C/A surplus vs. US means they must retain huge amounts of USD assets. this has a cost, because these USD assets don't do their real economy any good. think of it like this: you're China and i'm the US. i buy $100 billion more of your junk every year than you do of mine. if you try to convert that $100 billion to RMB, you will push up demand for RMB and push down demand for USD. therefore you keep it in USD. however, this is a problem for you. after all, it's not like it's "free" money. you have people back home whose wages need to be paid, and you need to paid your COGS. so maintaining those USD assets is going to cost you on the home front. you will have to add leverage at home to finance these overseas assets. eventually it gets to the point where you can no longer afford to do this, especially since China already has such horrible banking problems and enormous amounts of non-performing loans at the SOEs. fortunately for China, their labor is so cheap compared to ours that we will still buy gobs from them even after the RMB doubles against the dollar.

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