Conversation on the FOOL about rising rates, the US$, and the RMB float
Rien:
The Fed does not care much about the consumer, but they do care about themselves, the financial industry.
I expect the fed to continue to raise until the Chinese depeg, or until the US economy falls apart. Whichever comes first.
By raising the rates they support the USD, depress US consumption and thus put pressure on china from both ways: rising (or strong) commodity prices with slowing demand for products.
It is their way of saying to China: depeg or else....
Mish:
Note that many of the $ bears, especially on SI, think China NEEDS a stronger $ so that commodities will be cheaper. Many believe that a falling $ will force them to float.
Now I see you turning this argument upside down. I am not saying you are wrong, I am merely saying that someone is wrong.
The third possibility is both of the previous viewpoints are wrong and China simply does not give a rats ass about a rising or falling $, it just wants manufacturing to head east from the US as west from Japan. In that regard, the peg appears to be working or at least it is not hurting, so from China's point of view why change anything? As long as the peg continues to work LONG TERM, China doesnt care that much about short term implications or slowdowns as long as there is not a crash. The latter is probably not going to be a controllable event anyway.
IMO there is a lot of merit in that third possibility. If so, China has historically proven to be far more patient about things than anyone in the US could ever be. One factor to consider that I did not know until a couple days ago is that China supposedly has to float by 2007 according to some trade agreement. Anyone have details on this? Exact deadline? Perhaps they do not honor it if it does not suit them. The closer they get to the deadline, the bigger the risk of currency speculation pouring in. Judging by official statements, China is very concerned about RMB speculation. If they indeed are committed to act by 2007, I doubt they put it off until the last moment. In that regard perhaps China wants more of a slowdown in its own economy right now, to take pressure off the RMB, so they can float during a global downturn in late 2005 early 2006?
Mish |
