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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Chispas who wrote (34853)	8/4/2005 10:50:03 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Are US companies to Bretton Woods 2 What gold was to Bretton Woods 1? Brad Setser's Web Log Created: Aug 03 2005 rgemonitor.com .... China's reserves were growing by over $20 billion a month (taking into account valuation effects) even before it adopted a messy compromise of an exchange rate regime that sure looks like an open invitation for further speculation. That's one Unocal a month. At the end of 2005, China's cash horde - including reserves transferred to China's state banks - will be close to $950 billion. And that cash horde will - barring major shifts in China's exchange rate regime - be growing by $300 billion a year. Indeed, China's reserves could grow faster than that. The pace of China's reserve accumulation has gone up every year since 2002 - China's 2005 reserve accumulation will be almost twice its 2003 accumulation. Those betting on the continuation of the Bretton Woods system are betting that by the end of 2008, China will be willing to hold something like $1850 billion of reserves, mostly in inconvertible dollars. And that the US will be willing to let China hold that large a claim on the US. China's dollar holdings (assuming a 65/35 reserve split) would by then be approaching 10% of US GDP, and 50% of China's GDP. That may be a good bet. But it is no slam dunk. They are betting that Fred Bergsten is wrong, and that there won't be "a serious economic clash" between the US and China this fall. Or that the clash won't derail China's willingness to keep adding to its reserves. And don't even ask about the size of China's exports if 30% y/y growth continues til 2008, or even if China's export growth slows to just 20% ... A viable international monetary system has to be politically as well as economically sustainable. And just to be clear, if I were in Beijing sitting on China's State Council, assessing the world as it is rather than the world as I would like it to be, I would make that assumption that my euro reserves are just as inconvertible as my dollar reserves.