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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: GST who wrote (109490)1/23/2011 12:38:43 PM
From: russwinter6 Recommendations  Read Replies (3) of 110194
 
Printing more RMB and endlessly recycling USD has become disastrous for China. It is a completely failed policy that they persisted in for far too long. It is true that they could have made a transaction to create a more solid domestic economy based on real wealth. But instead they've gone with the merchantilist and the bubble speculation model. Now instead of a wealthier man in the street, they have powerful inflation that wipes savings out, destabilized production and serious overcapacity, and a small elite crony class getting the bennies.

You mentioned the possibility (but not likelihood) for a soft banking crisis. This sounds a lot like the talk we heard back in 2007 about "subprime only". China's banking issues are systemic and massive.

They could try and revalue the Yuan much higher, but at this stage I think that would require intervention: selling foreign currencies. It seems the small token revaluations only fuels higher commodity and input prices. They need shock treatment now. They would need to bring home their reserves any way to recapitalize their banks. They should have tried that along time ago, but now they are in emergency mode.

That will be hard to execute with developed countries including the US dependent on Chinese reserve financing. Countries like Portugal sold all their latest bill auction to China. So what China needs to do to save itself will be globally destabilizing. Perhaps they might decide that at least they can knock the US off its tenuous perch in the process? What they are doing now is far worse.
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