odin

China's Helicopter Wen: World Champion of Money Printing

This is trade protectionism by another name. While China is not officially devaluing its currency, its certainly trying to dent its high intrinsic value (the value if the RNB was traded in the open market). The goal ostensibly seems to be support of the "exporter" classes -- so that the worker classes remain employed and happy. (Chinese form of trickle-down economics?)

However, the reality seems that the easy money is getting channelled in financial speculation (equities and commodities). Inventories are building. This seems to be causing some demand "push", as this is being interpreted as "green shoots" by the entities in the middle of the chain (or even supporting consumer optimism).

However, it is the sustainable consumer demand that matters and it is yet not clear to me that it is there -- whether from the Chinese consumer (which is ultimately NOT the auto-buying upper middle class nor the nouveau rich speculating in real estate nor is it the workers and students who are borrowing to buy stocks but the vast majority of Chinese households who would want to spend _earned income_ on various goods and services) or from the deleveraging and increasingly frugal US consumer.

Every good decision-maker (and investor), as MacroMan aptly points out, should consider the possibility that he is wrong and hedge accordingly. I wonder if the Chinese establishment has considered this case where they are wrong and the easy money does NOT trickle down to the workers, that jobs do not get saved, and whats worse, causes a crash in financial assets where people are playing with borrowed money. Anyone remember the agitation for govt support of the markets in 2008 when Chinese markets were falling?

Can China Do Without the U.S. Dollar?

China extending credit is not the most critical thing to the strength of the US$. The respective strengths of the global and the US economies are what matter (and the Chinese economy, while growing rapidly, is still not significant portion of the global economy). Furthermore in a trade collapse (the environment prevalent at the moment), the export dependent, surplus nations suffer much more than any other nation.

The US does not "need" China to fund its fiscal deficit. By definition, if by any mechanism trade collapses (US buying fewer Chinese goods and China not buying treasuries), the US currents accounts deficit will shrink (with some minor assumptions about investment flows). As for funding the fiscal deficit, the increase in saving rates in the US will fund it, granted perhaps at higher rates.

China buying or selling treasuries over the long run I think will have minimal impact on the US$ relative to other currencies.

Looking at the +ve and -ve marks, its amazing to me how entrenched the $-bears are (undoubtedly political biases come into play here) and how unpopular the $-defenders are. But I draw strength from Ibsen: the majority is always wrong! (Yes, I am aware of the rest of the quote).

New Currency ETFs - Give Them Some Time

Its my impression that the currencies are held in NDF form (non-deliverable futures). i.e. you cant demand payment in the actual currency.

While I dont know about the structure underlying the NDF (how are these issuers hedging? are they buying CNYs?) What this means is that during periods of high demand (rush into CNYs), they will likely incoporate some of the expected appreciation and trade at a premium fx rate. When everyone is selling, I expect a big discount.

There are too many unanswered questions as to what one actually owns. What happens if convertibility is restrictred/suspended?