Mish's Global Economic Trend Analysis Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Mish's Global Economic Trend Analysis

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

From: John McCarthy	1/19/2009 7:19:30 PM
	1 Recommendation Read Replies (1) of 116555

Hyperinflation Begining in China and Will Destroy the U.S. Dollar SEVERE EDIT THERE ARE NO FREE LUNCHES If you have learned nothing else in the last year and a half, you should have learned that if something sounds too good to be true, that is because it IS too good to be true . The media overwhelmingly presents China's dollar peg as a win-win situation: Americans get cheap imports and low interest rates while China gets a strong manufacturing sector. While commentators do sometimes debates whether China will keep lending us money forever, they never talk about the REAL problem with the dollar peg. Below is a chart which shows how China's dollar peg works. See if you can spot the downside that the media never seems to mention. The US's trade deficit requires China to print money! The little discussed downside of the dollar peg is all the money China has to print to maintain it. China's Central Bank puts the extra dollars it receives from its trade surplus into its growing foreign reserves and then prints yuan to pay Chinese exporters. This results in an increase in China's base money supply by an amount equal to the increase in its foreign exchange reserves. His emphasis While China's ability to keep accumulating US reserves is endless, its ability to keep its money supply under control is not. The true threat to the dollar peg If there is one development which could force China to drop its dollar peg, it is out of control inflation. Rampant inflation would result in millions of citizens starving and would create widespread social unrest. Keeping food prices low is a matter of political survival for Chinese authorities. So, facing the choice between losing their grip on power and losing the dollar peg, they will not hesitate for a second to sacrifice the dollar to save their own skin. more marketoracle.co.uk

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next