So the Chinese are going to finally float their currency! http://news.ft.com/servlet/ContentS...y&c=StoryFT&cid=1079420507852&p=1012571727088 Do you believe it will happen? Will this have a massive effect on our economy? Or should anyone care?
1. Yes it will happen. Probably limited at first but full floating eventually. 2. Yes this is really really a big deal. China has a monster size economy. When they enter the market, it will be the equlivant of Godzilla destroying Tokyo. 3. What is more interesting though is how it might effect China's future purchases of US Debt.
If they do, it will mean + things for commodity markets because with a stronger currency (I'm assuming it will appreciate) you can buy more stuff, er, cheaper. Whatever. You know what I mean.
After reading the article, I dont get the impression that they are going to float. It said that the renminbi would fluctuate more. This doesn't imply a floating currency; rather, they probably will keep it very "managed" but allow a larger band of fluctuation. Perhaps this will lead to a true float in the future, but not immediately. We most likely won't know the effects of the policy change until we know the size of the band and the makeup of the basket. P.S. I don't know much at all about China's situation. But, from what I've heard, their banking system is in pretty bad shape. If they float fully, it may "bring the house down."
I'd be sceptical of this press stuff, we've heard these rumours before. In fact it wouldn't surprise me if this guy hadn't just loaded up on OTC Yuan forwards, and then liquidated them into the pop created by his comments in the article. As far as I'm concerned, the peg isn't over till the fat lady sings.
And so do US http://www.capitalupdates.com/ U.S. National Deficit $7,154,052,401,428 Deficit Increase Total for Friday $231,693,328 Deficit Increase Total for April $32,249,842,221
One way or another, China's currency, bad debt and growth issues are going to have a massive effect on EVERYone's economy. The US has a debt leverage problem of similar scale. This is why intermediate term forecasting is so tough; we don't know which variable is going to dominate and for how long. The worse the scenario gets, the crazier extremes governments and central bankers will take to stop a meltdown. If the risk is averted or bypassed, you have the leftovers of mass stimulus juicing the market. It happened with the preemptive Y2K liquidity rush and it's happening again now w/ Asian buying of US treasuries. If China's currency and economic situation starts looking ready to wreak havoc, we could see a "blowoff top" in terms of coordinated government intervention - or no holds barred government brawling - that could make currencies and metals go insane (gold and silver are already getting warmed up). If it ends badly, LTCM and Argentina will look like kid stuff in comparison to the grand spectacular.
I agree that all of this can only have a negative effect, but to me debt seems more like a slow suicide. It's hard for me to believe it will be volcanic, but you could be right. Who would have guessed that Japan would go into a ten year bear? Now it's easy to call, but at the time they were considered unstoppable!
A slow bleed is quite possible. It's not the same as suicide, though, because in this case the subject has no desire to die. The key variable is government action and what measures will be taken when the alarm is sounded. Just as with a very sick patient, the later the wakeup call the more drastic the measures will be. Japan had significant savings to draw on while the politicians fought last year's war (inflation) all through the 90's. We probably have too much debt leverage in the system to withstand a drawn out decline.