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  1. #1

    Default CHINA... from Revolution to Revaluation


    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
    their necks.

    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
    wages rise?

    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
    indeed significant.

    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 basket.

    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!

    Got gold?

  2. #2
    DTM's Avatar
    Join Date
    Dec 2004
    Newington, Sydney

    Thumbs up Re: CHINA ,,, from Revolution to Revaluation

    Good article. My brother in law who is a chemicals trader relayed to me from one of his trips was that China was creating internal demand and that they were self sustainable (like we used to be). He told me that the infrastructure works were massive, and that they couldn't build fast enough.

    This article makes me think that they have built up enough critical mass with their internal demand and are now being able to start letting go of their dollar peg and dollar purchases. Now they can buy more with their currency to satisfy their own internal demands.

    Interesting times ahead.

  3. #3

    Default Re: CHINA ,,, from Revolution to Revaluation

    Last night, China's stock market soared by almost 2.5% to end a very strong week...

    Here's an interesting slant on what might be happening as a result of the reval...


    I wonder how the balance between a "probably" declining US equities market and a "probably" soaring Chinese equity market will affect our little backwater...? I'm hoping our huge reliance on exporting resources of all descriptions to China (and thus a target for their investment clout) will hold our heads above the lapping waves..



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