From Revolution to Revaluation.
by Alex Wallenwein, Editor & Publisher
The Euro vs Dollar Currency War Monitor
July 25, 2005
Lenin and Mao may be dead - but Communism isn't. Living proof:
Communist China is the big darling of the world now, with a majority
of people feeling more favorable toward China than they do toward
the United States. It is also the big darling of big time
industrialists, bankers, and world leaders.
They all court China as if it will be the next world leader - and
for a good reason.
What could be nearer to a scheming social controller's heart than a
successful amalgam of the two most promising human control
mechanisms ever devised by mankind: Communism - and Capitalism?
Lest a reader think that the last remark exposes me as a closet
socialist utopian, let me qualify the word "capitalism" with the
word "fiat" here, for fiat and central banking are what turn free-
market capitalism into a silly subterfuge, a convenient smokescreen
for hiding a global drive toward absolute social and economic
control - one way or the other.
On that note, China is as of today the single most successful lab
rat ever spawned by the ongoing globalist experiment in societal
engineering that is called "Communism."
China, and its North Korean satellite, are the sole survivors of the
old-guard-communist dry-rot that gutted the Soviet bloc nations
before and after the iron curtain fell.
Sure, there are Cuba and Vietnam, but those are firmly lodged in the
category of "further mentioned" and like the PRNK, are not
independently viable without China's active or tacit support. Who do
you think helped Kim Il Jong perfect his rocket boosters to where
they can now hit the US mainland?
But that's just to set the background.
The point is that China still is a communist country, its apparently
free-wheeling pseudo-capitalism notwithstanding. As already pointed
out in China's Dirty Trick, its leaders have merely taken the fiat-
capitalist system to its final conclusion (i.e., boundless monetary
inflation that doesn't show up in price levels for lack of a
standard to compare things to), thereby having gone much further in
that direction than the free-floating international system has -
where currencies must still compete for an appearance of soundness.
Let that be a warning to those who believe a global fiat system is
desirable in any shape, form, or fashion.
In the sixties and seventies, communist China scared the world with
revolution. Now, it threatens the world financial system with
revaluation - except that the world isn't scared.
Ironically - and comically - the world wants China to revalue, and
applauds China all the way in doing so - without any idea of the
consequences, as the first two post-reval days of currency and bond
trading action made only too clear.
The conventional wisdom out there, to which I once also subscribed,
is that the yuan is undervalued relative to the dollar and other
currencies. That may be so in the short run - simply because that's
what people think. It also may have been that way in the past -
before the PRC had to print all that currency to buy up dollars
earned for its exports and turn them into US bonds.
But as soon as it becomes clear that China has issued way too many
nonperforming loans, and has printed way too many yuan to buy those
dollars in the past few years, and accordingly has way too much
money floating around its economy as a result, that picture may well
change in the years to come - and dramatically so.
The Effects - So Far
Judging from today's market action, the Chinese have managed to
throw a huge monkey wrench into the world market's grinding wheels.
Nobody knows what's going on anymore. Expert, veteran currency
analysts see themselves stumped in every respect at the incongruous
market actions of the dollar and US stock markets in the aftermath
of the revaluation announcement.
The dollar was supposed to go down. It went up.
The Dow was supposed to go up. It went down.
Treasuries were supposed to suffer. They love it.
Gold was supposed to rise. It fell.
Silver didn't know where to go. It was up and down all over the
screen, but drifting lower on Friday.
Only oil "obeyed." It went up from $56.72 yesterday to over $58.00
(NY Crude Futures). Sure, it's early yet, and this picture is most
likely going to change, but the intended disorienting effect of
revaluation is certainly apparent - and that despite the whole world
actually expecting China to move!
They just didn't quite expect it to happen now, in this way.
The amazing thing is that seasoned currency analysts are still
talking about "what if" China now will have less appetite for US
treasuries - as if last year's cumulative TIC data hadn't shown
already that China has virtually stopped purchasing them, long
before. I guess the readership of some gold info outlets isn't quite
as widespread and influential (or as keen) as I thought.
Why Did China Revalue?
Not because of US or even EU pressure, that much is for certain.
Not because it is afraid of world opinion turning negative on China.
They don't care - and it's actually turning into their favor.
Instead, China revalued for two main reasons: (1) The Chinese
economy keeps chugging and chugging despite central bureaucrat
measures to try and slow it; it is growing far faster than they are
comfortable with and needs to be slowed at all costs, and (2) it
makes it cheaper for them to buy needed imports - like oil.
As a side note, a word to the wise: I hope you didn't speculate on
the revaluation with large sums of your assets. If you did, they are
now tied up and it has become clear that the slow tempo of
revaluation will squeeze even the last hopes of windfall profits by
Letting the yuan rise in forex value makes "China" more expensive,
thereby reducing demand for Chinese goods. Good times can only last
so long, and the faster the economy rises, the sooner it will reach
its limit. Even Chicoms are afraid that the limit is only all too
near. So, the monster train needs to be slowed down.
Ordinary restrictive monetary policy is a waste of time in China. In
an environment where borrowed money is free (because few people care
about paying it back, knowing they can always get more because of a
financial system that have never been "in control" and so can never
go "out of control") nobody cares whether the interest rate goes up
or not. But making foreigners demand less Chinese goods via yuan
revaluation just might do the trick.
It also makes oil (and other imported natural resources) cheaper for
them, so hey - why not?
This "slow-the-monster" policy can be observed in action by looking
at China's refusal to impede wage growth any longer. It used to be
Chicom policy to not tolerate wage-price rises because they can make
stuff more expensive and so let on how bad inflation really is in
the country. It also would have deterred foreign investment by
outsourcing US companies.
But, now that the Chinese have already had their chance to swipe all
of our technology by snooping it up from outsourced production
plants (and the White House making sure that military use technology
is just as easily available to them), and now that the Chinese
economic monster needs to be slowed somewhat - why not? Why not let
It makes things Chinese more expensive in relative terms and slows
foreign demand somewhat. At the same time it improves internal
consumption by improving workers' disposable income - a problem the
Chinese have been wrestling with for a while now.
But Chinese employers haven't woken up to smell the coffee, yet.
They still think they can get away with offering too little pay, or
at least less than workers demand, according to this China Daily.com
article. Now, Chinese workers aren't willing to work for "too
little" anymore - and the government is no longer stepping in to
change that, as it. has before.
The really interesting part of this whole revaluation carnival is
the automatic adjustment mechanism the Chicoms have built into it.
Every day, the yuan can trade in a 0.3% band, up or down. The
following day's opening price will be the middle of that prior day's
range. This means that - potentially at least - the yuan can rise
(or fall) 0.15 percent per day, or up to roughly 55 percent per
Either case is unlikely to happen, of course, but this potential is
Next, true to their form of keeping the world guessing and hanging
onto their moving (lying?) lips, they have yet to announce the exact
composition and weighting of the currency basket they say they are
now fixing the yuan to. The dollar is likely to play a major role in
that basket, of course, but there is no hard and fast rule that says
the Chinese must peg their yuan according to actual trade weights in
The Dollar Basket-Case
What is rather clear, though, and what hasn't been discussed in the
press so far, is that the demand for dollars will not just decrease
by 2 percent or so. That was just their initial adjustment relative
to the dollar. In future, the "basket" will take over as the value
Trade with the US makes up only one third of China's total trade
volume. So if trade-weighting is what they have in mind in
constructing their currency basket - or anything even close to trade
weighting - then whatever current demand for dollars they still have
will be cut by two thirds - and that's just over the course of the
next year, alone!
Since this article is unlikely to penetrate the thick cranial walls
of corporate America, it will be interesting to observe the shock
and disbelief with which future TIC data will be received and
examined by the mainstream financial press.
In summary, China's journey from revolution to revaluation is far
from finished. It hasn't even begun, yet. As the world stares,
mesmerized, eager to trade with China and prop it up to be the next
world superpower, eager to turn its back on America and welcome a
future communist superpower in order to "balance" the still
tremendous influence of the United States, China is gearing up to do
just that. And the American corporate and political governance crowd
does everything in its power to help this process along - freedom
and US national security be damned.
Revaluation is just one more step in the Chinese game plan, and that
game plan is a direct extension of Mao's revolution - except that
the new revolutionaries are wearing Western business suits and drive
Mercedes and Lexi.
The really scary thing, however, is that the entire world has been
turned away from gold as a viable store of value - only the Chinese
are being encouraged by their government to buy and stock up
physical gold as a currency hedge.
It is apparent why the Chinese Leaders want to do that. It ensures
their national survival in the face of all economic challenges. What
is less apparent is why all other governments effectively discourage
their own subjects from owning gold. Is somebody stacking the deck
in favor of China?
Boy, will the world have a rude awakening when it begins to smell
that cup of coffee being brewed up for it!