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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: russwinter who wrote (73983)	11/11/2006 2:07:01 PM
From: bond_bubble	Read Replies (1) of 110194

I believe the Chinese subsidy will go as long as there is no inflation in China. If oil goes to $100, China will immediately prefer to revalue its currency OR atleast start using the surplus. It will use the surplus by starting to subsidise oil, food (wheat, corn, meat etc) to keep the inflation down. Ofcourse, it will do that with the USD that it has accumulated. i.e All the $1T surplus will be used to purchase meat, wheat and oil from US!!! May be Chinese will pay humongous price for the wheat and meat and oil purchase (from US) - thus getting less for their surplus. But nonetheless, US will shoulder the burden of Chinese inflation (going forward). This is when Fed will choose to raise interest rates so that Chinese dont convert their surplus into food, oil purchase and allow GSEs to fail (and hence lower the surplus Chinese hold) - and that is the only way Fed can lower the inflation in US. So, the next sign to watch is - Chinese buying more food, oil followed by US raising interest rates.

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