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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (53390)	8/10/2009 12:08:25 PM
From: Amark$p	1 Recommendation Read Replies (1) \| Respond to of 218846

Chinese inflation likely... safehaven.com BUY Gold... Second, China does not "finance" the US trade deficit. What happens is that Chinese producers willingly send goods to the US in exchange for dollars. If the manufacturers of Chinese goods are dissatisfied with this arrangement then they have the choice of finding other customers or stopping production. Third, the extraordinary size of China's official foreign currency reserve ($2.1 trillion and growing, about 70% of which is US$-denominated) stems from the efforts that have been made over the years by China's government to 'manage' the Yuan's foreign exchange value. It works like this: A Chinese company exports some stuff to the US and receives dollars in return, but most of the company's costs are Yuan-denominated so the company trades these dollars for the local currency. When this is done on a large scale it puts upward pressure on the Yuan relative to the US$, which the Chinese Government wants to resist. The government therefore buys the dollars using newly-created Yuan, thus offsetting the upward pressure on the Yuan. In other words, to keep the Yuan/USD rate at a certain level the government of China adds to its USD reserves and simultaneously increases the Yuan supply. This not only has the effect of reducing the Yuan/USD rate to below where it would otherwise be, it also boosts prices within China. Fortunately or unfortunately, depending on how you look at it (Keynesians and Monetarists would say "fortunately" whereas members of the Austrian School would say "unfortunately"), the prices that have been affected to the greatest extent to date are the prices of investments (stocks, real estate and capital goods)... The fact is that China's government has been able to create the ILLUSION of success by setting in motion a dramatic expansion of the money and credit supplies via the government-controlled banking system. Bad loans are being piled on top of bad loans and new mal-investments are being piled on top of earlier mal-investments, thus creating even more distortions within an economy that is already labouring under the distortions created by previous rampant credit expansion.