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

To: TobagoJack who wrote (70982)	2/12/2011 8:06:11 AM
From: carranza2	Respond to of 218620

I made the point in an anonymous submission as a comment to Duncan's blog, but he did not deem it worthy of publishing, or disagrees, or has not read it. Other, less informative, comments were approved and therefore published. I am at a loss. Accordingly, it appears that Duncan might be the type that cannot handle contrary opinions, esp. when backed up with facts. Despite having done earlier work which was stellar, Duncan gets strike one from me. Will of course continue to read him (I am omnivorous), but with a bit of skepticism.

To: TobagoJack who wrote (70982)	2/12/2011 9:04:56 AM
From: carranza2	Read Replies (1) \| Respond to of 218620

More on possible China bubble. I understand that the export trade, though significant, is not a paramount feature of Chinese GDP. But I think we need to look further. It is undisputed that Chinese USD reserves total about $3 trillion. The source of most of this huge figure is undoubtedly the export trade. When Chinese exporters sell, they get paid mostly in USD, which they trade into renminbi at the PBOC. The exporters thus have unleashed about $3 trillion worth of renminbi, whose value is tightly controlled, into the Chinese economy. As obviously lots of this moolah is deposited, the fractal banking system creates an enormous amount of additional renmimbi liquidity. The proceeds of these domestic loans are (probably) used domestically for the most part, thus funding internal development and substantial GDP growth. This is how I see the export trade indirectly creating GDP growth even if it does not do so directly. The accumulation of USD creates a much, much larger creation of renminbi due to bank loans. If you look at Chinese money stock figures, this is clearly the case for the rate of money supply growth in China dwarfs that of the US. And we are pretty good at that game. Because the USD reserves are so huge, and the banking system creates liquidity times x, I think it is safe to say that China is awash in liquidity, even if we agree that the export trade is not a predominant feature of Chinese GDP. And this makes sense, no? In any event, the Chinese money supply figures don't lie. The rate of growth is enormous. Countries awash in liquidity are in danger of creating bubbles. We certainly know that's true here and elsewhere. This may be what's happening in China. I'll grant you that China is a green field for growth of all kinds, but I fear that a country which is awash in cash and whose banks create even more liquidity, is in danger of being in a bubble. If the renminbi were to be allowed to rise to market rates, the creation of foreign reserves and the funding of internal development via loans would be stunted. If a bubble is in the works, this would certainly be a good way to stop it. If China is in a bubble, we can reasonably say that it is due in large part to the failure to allow the renminbi to seek its market value because the USD coming in from the export trade would buy fewer of them. Can Chinese policymakers manipulate the renminbi's value sufficiently so as to allow continued healthy growth without creating a bubble? It's a tight line they have to walk and a mistake could result in a very damaging bursting bubble. I would think it would be best for all concerned to allow market forces to operate, but no one asked me. One more thing: Because of bank loan leverage, a decrease in foreign reserve accumulation caused by negative conditions in the countries to which China exports probably results in a times x decrease in renminbi creation. This can either burst any bubble if it exists or slow down the economy sufficiently to allow a soft landing. though the exercise has been interesting, I still haven't figured out if China is in a bubble. vbg. i think I am concluding that a bubble is really a psychological rather than purely economic thing.