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I'm leaving Europe
..and I take the nearest flight to the USA, plainly cheat the warthdogs at the US border ...."m'Merican' and I slip in without visa. I then forget about all the rest of the world and I concentrate on the US business in relation to the RoE issue. Just to talk with you about the same thing, ray.|
1. The nerve link between China Central bank and stocks in America.
My answer is ...YES , ray. If a sweeper employed in the Top Office of Bank of China, would sneeze remarkably in the bus, speculants in America begin nervous. If the medium rank official of the same bank tells two sentences across the table during lunch in Beijing, phone lines in NYSE get red hot and talkers beat next record of words_spoken_per_second.
But this concerns movements of Chinese forex , which the biggest part is kept in DOLLARS, not RMB. So when China may move her DOLLARS, I repeat again, or just mention that next DOLLARS in the coming year will partly go to other places than the USA - this makes panic and nervous atmosphere, because of the thing you mentioned. The necessity to have constant flow of money in to keep the internal debt served. I would like you to notice we are talking aboyt Chinese Dollars not RMB. I say Chinese dollars as China is the owner of them.
Therefore when you said >>>..has the ability to move markets and interest rates, as you saw last July, despite not being an internationally traded currency.<<< true - but is has nothing to do with how much RMB China has , but has ALL to do with how much Dollars are in her possesion.
From Import perspective.
All here is what I also cuncur with. But the "Attracts more financing for the US. " is disputable. THat doesn't mean I say it is opposite, it only means Isay it is not so simople to state. In the short term - you are right. Less money is the hands of foreign exporters from countries , which have huge balance in plus = less money is being injected into US in the form of buying gvmnt obligations and real estates.
But please consider the effect on the stock toward investments in companies/exporters. If the gain capability to multiply their export to China, considering the capacity of Chinese market it would attract quite a money to invest in them. This would take time, surelly, but in longer perspective this might offset the negative impact from lesser stream of Chinese money.
Healthier and more competing American economy would rather give more faith in the worth of US dollar, thus giving its strength. It is not the RoE between dollar and any other currency which counts, but the foreseen changes. Having economy based nearly entirely on the domestic consumption, real estate speculation, and bubbles , plus export of of raw food( this part is still healthy) makes the investors pray that the consumption will not crack. But with the level of debt , which concerns both the government and the average Joe, more and more people see the shape of the pyramid, something like what happened in Albania, only on uncomparable larger scale.
Albania's pyramid virus had short life - just a few years when all hell broke loose. Their Lek was not world money. US dollar is, so USA is anchored in multiple points to the world economy, with the strongest hook on petrodollars.
I agree that the interest rates are one of the strongest impulses making world money to wander across continents. But if we put aside hot money, which are pure short term speculations, the rest of the flow wil as much at least be based on the TRUST in dollar and confidence that it will not be devalued suddenly to other world currencies, or that in time the interest rates will not be forced to drop down significantly , or...that it will not just break with big BOOM.
I think above was also written from money supply perspective.
Now, whatyou wrote under the same term treats rather about Chinese Bank reactions on financial market , to get RMB at the desired level by using US dollar munition.
Ray, for pete;s sake..such market DOES NOT EXIST.
China would need to buy enough RMB, to decrease the RMB money supply, thereby increasing its value
RMB is not the world money ,ray. Where from would CVhina need to buy enough RMB? From Chinese bank of Agriculture? From Bank of China? From Chinese Industrial Bank? From which of CHINESE banks?
Because NOT from the world. There are no RMB in the world ( forget about these small pinnuts here and there) .
RMB is as strong internally as much it has coverage in internal production and services, i.e. as much as the internal market is strong and saturated with goods. Only , if suddenly , or not, the internal market would get emptied, like it was during the central planning, then yes, RMB would get inflated.
If China tomorro says "the RoE is now 1:2, or 1:15. or 1:8(as it is now) ,what has the USA in habds to financially change it? How much RMB lays in the hands of American banks that they can throw RMB to the market and drop it down? Even if they had ( and they don't) the RMB market is not any free market where you can swap money left and right. It is all controlled on big scale. Small amounts , fine, they can sneak through Chinese Wall, bit massive attacks to drop RMB? Fairy tales , ray. No can do.
Chine does not need to buy out any RMB to change the RoE, because there nothing to buy , what they already do not have.Generally, you can only pick up some very small and not worth mentioning sums, which have no any impact on the mass of Chinese economy.
What you are talking about, keeping the value of dollar, is talking about keeping its value to the world currencies, which are as easily transferable and exchangeable.I do not polemise with your 17 points. But you mix devaluation of dollar in relation to the money having purchasing power everywhere, with devaluation to the money , which has purchasing power only in China. May be not even this. I would need to know, whether a foreign company can buy a substantial (big,big) volume of goods in China against , say cash in RMB, officially. Not just in barter as the result of agreement between China and some poorer countyry, but say, you, ray, come to China, go to a factory and buy their product for export using RMB cash. Factory would'nt mind may be, theu are good people, but the rules would quickly show you this is not possible.