James Lewis

Will Obama Replace Geithner with Dimon?

Come on Mr Richman. We know you feel strongly about China's trade practices. But believe me putting Warren Buffet at the healm is not going to help bring trade deficit down. Can you imagine the conflicts of interest here!!

I figure Obama is going to replace Geithner because he has no real guaanxi to talk about and quite frankly knows f**k all about how to get the Chinese to play a little fairer. I also figure that Obama is more interested in opening up China's financial system as apposed to trade wars. Who better to do this, than a banker? One who has spent time in China.

If it was upto me I think I would put someone from Asian or African decent. White people antagonise the Chinese far too easily.
Especially Amercian white people.

The King Canute Economy: Governments' Futile Attempt to Stem the Tide

this is a very good article...
can the masters of the universe hold back the tides indeed.

of coruse as negative as all this is, if the OECD countries can generate enrgey using clean technology and take away flows of USD to the oil countries. Then we could see a re-emergence of wealth back to the west. Also if the west shuts off imports into their markets, more domestic manufacturing could fuel added value in the western economies.

The point here is that the USA has more faith in making money in the Chinese market and by doing so become closer to China. Then to block off chinese exports and make them in their own country.

I agree that the asset bubbles created a veil of untruth and hid the underlying weaknesses of the west economies but be clear these asset bubbles were financed by the east as well. So in effect the east paid a great deal towards this fake wealth. Also the IT and technology revolution did add a great deal of real value to the western economies.

Innovation and technological advancement adds so much to an economy. More than economists can ever believe. This is why R+D pays off. The USA strategy of getting low value added goods madeinthe East while spending its time/money on R+D may pay off.

From where the US is standing I belive they know they have to create real value added to their economy. So I do not think their arrogance is blinding them. They better hurry up and they better hope they can generate 2-3 trillion/year from clean energy. If they create enough money through QE and hyperinflate the money supply by 100-150%. Then in 2020 they may be able to wipe out all their debt.

China's Yuan, Not the U.S. Dollar, Is Too Cheap

good article, not sure about 40%. Maybe 15%.
Chin after all has printed some serious amount of yuan over the last few years.

Will the U.S. Remain China’s Biggest Export Destination?

If the USA effectively bails out all the non-performing loans of its banks. And creates a few more trillion through QE, it is highly likely that they will have the ability to import high quanitities of chinese goods.

Lets just hope that the USA wakes up to protectionism, because without it. China will carry on its monopoly of free trade. My guess is that we will have a contraction of protectionism short term while the USA gives China one last chance and carries on printing money and getting Iran under control. But next spring we could see some unprecedented protectionsim coming from the USA.

If I am wrong and the USA carries on letting the trade surplus with China, to get bigger. Then you can pretty much wave goodbye to americas economic supremacy.

I get the sense that Obama is a very tough individual underneath.
So with a bit of luck the USA will be OK

Where Are U.S. Dollar and Yuan Really Heading?

Can we have your take on the last chart.
From what I can see the Yuan/JPY/Euro have all in the last 10 years increased in value against the USD by exactly the same amount. Almost exactly.

I don't believe in efficient markets...so I look at this. And it seems to me all the central banks have in effect re-valued their currencies against the USD by the same amount since 1999. The only way this could be possible is if the Japanese and Europeans are guiding their currency towards the Yuan level currently.

Is this your take Erwan?

If it is, then looks to me like a quad-lateral fx trade war could breakout. ....Free Markets, me dont see any!

How China's Dollar Peg Keeps Oil Prices High

The Author actually quoted another source, which I think is where the confusion is.

The oil price rise was due to a number of factors:

There was a huge amount of large speculators cornering the oil market via driving the price up by buying oil contracts through a swiss brokerage. I dare to say that I think this was the US government using un-official channels. Remember that the higher the oil price went the more the chinese would lose out from. This would drive up the cost of transporting their exports as well as increasing their various subsidisation bills. One would also think this was bad for the USA, but in my view USA is NOT a net importer of oil. My view is the US controls huge oil reserves. And benefits from increase of price on the nations asset value balance sheet.

The thing about cornering markets, is everyone joins you that follows trend-following systems. TYou bascially had everyone long (governments, hedge funds, oil companies). Cornering the oil market was very easy as everyone knew the chinese were trying to buy as much oil as possible; due to the lack of their strategic reserves and their USD surplus.

At around the top the Amercian government dumped a huge amount of physical delivery of oil that it had extracted from iraq.
I do not recall the amount but it was truly a huge amount.

Remember everyone tries to corner China into buying resources at top dollar. As soon as anyone knows China is buying, all sorts of spiders come out the woodwork and driver the price up! This of course is the reason why Rio Tinto employees are standing trial.

So the oil market was cornered, then at the top the USA dumped huge amount of oil at the stupidly high levels. At which time, the financial crisis triggered the recession and demand destruction of oil. At the same time, the dollar plunge team conducted a huge squeeze of those who were short dollar, taking the dollar up which resulted in fall in oil because it is denominated in usd. Now at the same time the financial system went down all around the world, which caused a massive flight to quality into the most liquid market in the world (usa government debt, in usd); this created a further rise in USD; fall in oil.

To further the oil weakness, countries like Iran, Russia and a few more. Kept pumping as much oil as they could (because they had lost their cash cow during the fall and needed revenue fast). A lot of the OPEC countries refused to adhere to the quota cuts that Saudi Arabia prescribed to stabilise the oil price. So you had a lot of supply in the real world coming on board when demand was being destroyed.

This is what caused the rise and fall of the oil price.

So the various carry trades involving the USD did contribute to the fall in oil. But the Yuan-USD is a only a part of this. After all a huge amount of emerging market flows came back to the USA during the flight to quality.

In terms of stating there is a postive effect on oil price from the dollar being pegged to yuan. This has some truth grounded in the past to it, but from a different source. Because the Yuan was undervalued, it encouraged a lot of flows and demand for chinese goods which filtered into demand for oil. The Chinese then re-cycled their surplus by lending more money to the USA that was lent to households which bought more chinese goods which created even more ARTIFICAL demand for chinese goods. All the demand for chinese goods gave rise to the need to buy more oil. Expectations of more demand for chinese goods, gave expectations of the need for more oil. Of course because the chinese were selling lots of goods this also developed their economy and country which lead to a real need for more oil.

But now the rules of the game are different. China is more aware of how much oil it needs, not buying blind. Also the trade relationship between the USA and China has changed. In that the USA is not happy running trade deficit and having to depend on China to finance its deficit. The US has implemented subtle policies to increase savings, so demand for Chinese goods (and goods assembled in China originating in other countries like japan) has dropped. Therefore the yuan being pegged and by definition undervalued is not creating artifical demand and therefore not leading to increased flows, increased oil purchases.

In fact going forward if the Yuan remains pegged it will be very negative for oil. This is because China's trading partners are not happy with the pegged/undervalued yuan and if it kept this way. Some very serious protectionism legislation will be passed against China. China will then counter-react and the whole process will lead to reduced world trade. Which is very negative to oil demand.

Better Listen What China Has to Say

I think the author does not understand the basic tenents of the balanace of payments. Nor does he understand how gdp is calculated in China. In China 6.1% GDP growth (which is around 4.5% after the lies have been factored out) is indicative of a recession. In terms of China's reserves, the reason why the Chinese Government has so much reserves because they run China like a business, not like a non-for-profit organisation with the PEOPLE'S best interests at heart. I'm sure most countries could build up reserves by holding down the living standards of a great majority of its people in order to fully exploit and profit from its human resources.

Also do we not think China is getting a little head of itself talking about the Yuan being a reserve currency and the need for them to buy more gold. Most of the worlds population dont even know what the yuan looks it.

And China is not a Dragon..it's hungry Tiger.
Europe is the Dragon.

Tom E, nice thoughts. Seems to me the speculative stock-piling is also a short-term trading hedge against the dollar weakening. Some days I feel that China is talking the dollar down to make their speculative stock-piles rise in value (in USD terms).

A Crack in China's Great Wall

Huangjin, you are certainly correct of the effect of an undervalued currency when you look at Hong Kong; where the HKD has become the natural exchange rate and everything has priced itself accordingly.

However the Chinese Economy is vastly bigger and the export ratio is vastly bigger as well. So this presents a very different picture and cause and effect realtionship.

Also we must not forget that undervalued currency breeds interest from de-stabilising trading strategies to take the peg out and profit from a return to equilibium.

In China's terms the undervalued dynamic peg has caused major structural imbalances in the economy and also the wage/income differential between its people.

Which is made more complicated by the fact that there are pockets where the dynamic peg has become the natural exchange rate and caused a revaluing in the prices of a lot of goods domestically.

The two points are the reason why the CCP are having so much difficulty predicting the outcome of revalution. Of course the positive side of the Yuan devaluing domestically due to monetary inflation is that it actually stimulates an artifical strengthening against international currencies without the price moving.

i.e. you print lots of yuan at home (to keep currency undervalued), it is worth less on the international market in real terms.

It is for this reason it is actually very hard to calculate the true equilibrium price.

Can China Carry the Post-Olympic Torch?

I have a question Mr Jefferson:

You state a revalution of the Yuan would:
''And this would, over time, make assets in China extra ordinarily undervalued such as real estate''

Can you explain in short terms what you mean.

Are you stating that currently in USD/Euro etc terms Chinese Fixed Assets (real estate) are cheap due to the undervalued yuan.

Or are you stating, as the Yuan strengthens against world currencies that this will create a wealth mechanism (from increased domestic buying power) that will make Chinese Fixed Assets more affordable.

Very interested in your opinion.