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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: RealMuLan who wrote (14579)11/2/2004 1:38:03 PM
From: Rarebird  Read Replies (1) of 116555
 
< I quite agree, although have no idea how could they do it effectively>

A "fudge" is very likely to go in. Instead of a straightforward upward revaluation of China's currency, what is likely to happen is a widening of the Yuan's trading band against the US Dollar. Once that is done, it will be seen right across Asia as the first step in a longer sequence of such currency adjustments. Most Asians will likely lower their own holdings of US Dollars and US paper assets to the minimum extent commensurate with ongoing trading and normal corporate operations. At that point, the standing of the US Dollar across Asia will be, if not broken, at least gravely and severely compromised. That, in its turn, will have massive fiscal consequences for the US Treasury and its need to sell even more debt. That will in turn have consequences for US market rates of interest, US bond yields and the entire interest rate structure inside the US. If the Asians, led by China, no longer come to the now three-year long "buy US debt paper" party, the US Treasury and the US economy will be facing more than a US Dollar against Asian currencies. The US will also be facing climbing internal US interest rates as well as higher prices for most goods imported from Asia. The bells are tolling for the USA.
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