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China shifting out of dollars ???

Discussion in 'Legal' started by Waitone, Jan 7, 2006.

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  1. Waitone

    Waitone Member

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    Are the chickens headed home???????.

    First, Iran shifts away from the dollar to the euro

    Now this

    http://www.marketwatch.com/news/sto...6-412A-A561-59C4C7CE4B28}&siteid=google&dist=

    China signals gradual dollar exit
    Analysts see broad impact even as market yawns
    By Chris Oliver & Rachel Koning, MarketWatch
    Last Update: 12:56 PM ET Jan. 6, 2006
    Disable MW live quotes | E-mail it | Print | Alert | Reprint | ?

    HONG KONG (MarketWatch) - China's latest signal this week that it will diversify foreign exchange reserves away from U.S. dollars and government bonds could ripple through U.S. and global markets, analysts said Friday.

    China announced several steps this week in follow-up moves to its decision last summer to drop a decade-long yuan-dollar peg. Policy changes continue to come at a pace frustrating to U.S. manufacturers and some global financial officials but more change may be in store.

    "They are allowing more flexibility in their foreign exchange and leaning towards currency appreciation," said ABN Amro's chief Asian strategist in Hong Kong, Eddie Wong.

    As of November last year, China had $769 billion in foreign exchange reserves. Up to $247.6 billion are invested in U.S. Treasurys. Unofficially, China is believed to invest roughly 70% of its reserves in U.S. dollar assets.

    The latest move "is going to have a profound effect on most financial markets and the U.S. economy," said Peter Grandich, who pens the Grandich Letter, tracking gold and currencies.

    He thinks part of China's diversifcation will go into gold.

    "It seems to us that the Chinese had made a bargain with the United States," said Richard X. Bove, analyst at Punk, Ziegel & Co.

    "Let us keep the yuan pegged to the dollar and we will buy your debt. Force us to float our currency and we will put our funds elsewhere."


    Yet the news had a limited impact in financial markets initially.

    China was cited among the issues weiging in the dollar Friday, but interest-rate differentials remain in focus. The greenback fell sharply after mostly strong U.S. employment data still weren't considered enough to keep the Federal Reserve raising rates deep into 2006. See Currencies.

    The dollar hit its lowest in more than two months against the Japanese yen, largely considered the proxy currency for Asia.

    China's yuan slipped to 8.0668 per dollar, a decline of 0.001 yuan on the day Friday.

    On Thursday, China's foreign exchange administrator posted a statement on its Web site citing a desire to "improve the operation and management of foreign exchange reserves," although it did not specify details.

    The statement added: "The objective is to improve the currency structure and asset structure of our foreign exchange reserves, and to continue to expand the investment area of reserves. We want to ensure that the use of foreign exchange reserves supports a national strategy, an open economy and the macro-economic adjustment."

    Earlier this week, China implemented a new over-the-counter trading system for domestic currency investors and banks and a more market-oriented parity benchmark rate that may lead to faster yuan appreciation.

    During the past two months, new reserve accumulation lifted total foreign exchange reserves to between $800 billion to $1 trillion, according to ABN Amro's Wong.

    Chinese banks have another $125 billion in foreign currency assets held in greenbacks, which represents a growing risk should the value of the U.S. dollar decline suddenly, Wong said.

    China, last summer, dropped a strict, decade-old dollar-yuan peg, which kept the yuan artificially low so that Chinese goods are competively priced on export markets. The yuan trades instead within a narrow daily band against a basket of major currencies.

    U.S. Treasury Secretary John Snow said on cable chanel CNBC Friday that China should take additional steps to let its currency move under market forces.

    These moves will benefit China and the global economy, Snow said.

    "One of the things China is worried about is one-way bets that the yuan can only rise," he said. "So if [currency market] speculators are beginning to think that might not be the case, it may create an environment where China may have more latitude ... to let the currency move," he said.

    "Early this year, I expect Beijing to move into the second stage of its [yuan] reform by permitting more genuine currency flexibility. As a result, yuan could meaningfully appreciate against the dollar," said Morgan Stanley analyst Stephen Jen
     
  2. Joejojoba111

    Joejojoba111 Member

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    It's actually a really big deal. China has had the theoretical ability to throw the final straw on the camel's back, economically speaking, for years. But it was theorized that they never would, because it is to their benefit to keep it alive.

    Essentially the Chinese buy the US debt, and the US consumers go into debt to buy Chinese goods.

    If China has chosen to sin kthe ship, it might signal they have chosen to move in what they perceive as a 'window of opportunity'.

    Notice that Asian politics often don't focus on the West, though we feel they do. For instance, in WW2 Japan was actually at war with China first and foremost, and the reason they had to attack was that there was a 'window of opportunity' where China was weak and Japan was strong, and it was not expected to happen again for a long time.

    As well, China could freeze the entire Japanese economy by closeing the Malacca strait, giving Japan approximately 2 days of energy reserves and whatever ships are docking at the moment...
     
  3. Sodbuster

    Sodbuster Member

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    I'd dump the dollar if I could.
     
  4. Kodiaz

    Kodiaz member

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    What is amazing to me is that this didn't make the papers here in the U.S. I read about it in a UK paper online. Also Iran has said they wion't accept dollars for oil in March of 06. This could be the start of a very bad year.
     
  5. Art Eatman

    Art Eatman Administrator Staff Member

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    Since the actual Chinese monetary policy isn't at all THR stuff, let's shift emphasis:

    Add up all the issues of currencies, federal deficits and balance of trade deficits, and assume all these chickens do come home to roost. I've long assumed a serious recession is in the offing, if not an outright Depression.

    What do you think will be the sociological repercussions? What behavior patterns across society if we have truly high unemployment? If there is any correctness in the belief that violence would increase, what repercussions would come from city councils, state legislatures and the Congress?

    We've talked about government intrusiveness in information gathering. Would that increase? Would the Schumers/Feinsteins see street violence as a way to justify anti-gun legislation?

    Art
     
  6. thumper723

    thumper723 Member

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    That is a real concern.

    Normally honest people will do desperate things when they are up to their necks in stuff.

    Now, the 1929 crash and resultant depression WAS bad, and we had people standing in line in soup kitchens and going hungry in large numbers.

    That brought us a ton of psuedosocailist programs, which helped short term, but have caused long term problems. I see this as a possible way the blissninnies will get the sheeple to allow MORE socialism in America.

    Lord help US if this comes to pass.

    I prepare for the worst, and hope for the best. Reality will probably be somewhere in the middle.
     
  7. longeyes

    longeyes member

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    Sociopolitical implications?

    Gold will skyrocket (up $13 yesterday).

    But "lead" will prove more valuable than gold...

    The U.S. and China are at war by other means.
     
  8. longeyes

    longeyes member

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    If we had the political leadership we need in a time of crisis, which this clearly is, we'd be mobilizing--not just militarily but economically. If we stay on the escapist spendoholic path we're on, dissipating our middle class, importing cheap foreign labor, ignoring the deficiencies in our schools, we are merely a decadent power that happens to still have a powerful military. But even our military strength is increasingly dependent on foreign engineers, technology, and, above all,off-shore manufacturing--can we still rely on GM to make our tanks? America needs to do some soul-searching and begin to understand what makes a nation sustainably great: discipline, hard work, strong moral and civic values, a sense of purpose and honor, a sense of a national culture.
     
  9. jungle

    jungle Member

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    Any Chinese effort to dump the dollar will hurt them as much as us, in a practical sense most of the major currencies prop each other up.
    Even if the Chinese could do major damage to the US economy, then they will have only destroyed their primary market. We sell them many vital technical things, like commercial aircraft and certain other types of capital equipment. They primarily are selling dirt cheap labor to support a society that is 85% by population agrarian.

    Gold holds no magic except as a tool for occasional financial hedging, but anybody can use virtually any commodity to do this. If the SHTF in a very big way, water, food and ammo will be far more valuable-even more so if you think wrongly that you'll be able to waltz down to the local bank to retrieve your coins.

    Edit-Our own spending is hurting us far more than the Chinese. Top three: Social security, Medicaid, Debt service, this is where most of the Federal budget is going right now and it is caused by allowing the Government to spend money it does not have and will not be able to confiscate without some very ugly social engineering.
     
  10. Joejojoba111

    Joejojoba111 Member

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    Effects of an economy where no-one has any money in a country where the majority of jobs exist to service the whims of effluence... I'd have to agree. In the 30's there was actually a tangible product still being made. Today what the heck happens to people who fluff poodle's hair for a living, and crap like that? They become suddenly politically active and will demand that those with tangible jobs support them too.

    Possible happy outlook - economy in tatters big gov't is forced to disband big brother programs since employees won't work for free. People re-learn self-reliance and the whole country is transported spiritually back 150 years. States take over what the feds no longer try to do, and the country it reborn,

    Hopefully China really has no ambitions of western conquest, and there might be a couple skirmishes with neighboring nations.


    ...On the other hand North Korea doesn't seem to be going anywhere, so that's another possibility to consider.
     
  11. jungle

    jungle Member

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    The failure of the Social programs will cause many to rethink the role of government and if they think carefully the result will be a government that is more concerned with prosperity than taking from one half to care for the other.

    Go to Japan and count the number of US cars you see on the street in an hour. Trade is great, but there has to be a limit on the restrictions that we can accept in such lopsided arrangements.
     
  12. rick_reno

    rick_reno member

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    Watch - we're going to trade Taiwan for continued support of the dollar. This is the plum the Chinese mainland has wanted for years and they're in a position to take it. It'll be a peaceful transition, no one wants to ruin the manufacturing infrastructure that Taiwan has to offer. The US will back off any support for Taiwan and the Chinese will pick it off the tree.
     
  13. bogie

    bogie Member

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    Well, I'm not sure what's going on, but my mutual funds are up almost 4% in the past week...
     
  14. Fred Fuller

    Fred Fuller Moderator Emeritus

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    "I'd dump the dollar if I could."
    =======================

    There's nothing stopping you, if you have dollars TO dump. Go to www.everbank.com and click on WorldCurrency Accounts. And/or go to www.tulving.com or any one of dozens of other dealers in precious metals.

    lpl/nc (dump early, avoid the rush)
     
  15. Waitone

    Waitone Member

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    We are a culture built on debt. Period. Full stop. We are not a society producing wealth. There is an eventual price to be paid. Whether or not we can survive the consequences of our own stupidity remains to be seen. I am not certain we can. In the near term if countries like China fail to purchase US debt I am confident the fed.gov's response will be to go after the last big pot of untouched wealth left. . . . private retirement. Right now the PBGC is the dumping ground of private and underfunded pensions. Corporations get intro trouble and the first stop is to unload pensions which the USG happily accepts. I also think USG is capable of acting very fast when its own interests are at stake.

    I am very concerned over decisions made by Iran and now China. I fully expect other countries to go and do likewise. Of equal concern is the FEDs' decision to stop publication of the M3 figure. Stopping publication just happens to coincide with Iran's change over date. Sorta makes me wonder if our handlers see bad ju-ju coming down the road and want to control available information.

    I don't need conspiracy theories when I have AP, MarketWatch, and Bloomberg.
     
  16. jungle

    jungle Member

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    The PBGC is already hundreds of Billions in the red and about to go deeper, another failed social engineering scheme. Payouts from this fund, even in the best of times never covered the entire pension.

    We are a society that produces a great deal of wealth and the single strongest economy in the world. Unfortunately we have allowed government to consume over 50% of our GNP chasing fantasies. If this can be stopped, we will recover rapidly.

    As far as controlling information, there is still more than enough out there to make rational guesses, which is all that can be expected from planners,government and economists. I wouldn't worry about Iran, their economy is surpassed by several individual corporations in the US.
     
  17. Sodbuster

    Sodbuster Member

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    Way ahead of you, but thanks for thinking of me. Still sittin' pretty from the 2000 run-up, see the same in 2006.
     
  18. Art Eatman

    Art Eatman Administrator Staff Member

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    If you believe that the dollar will continue to lose strength against other currencies, and that the 35-year trend of costs outpacing average incomes will continue, do you believe that there will be more problems in urban areas?

    If so, are you looking to your own future and that of your kids (if you have any) so as to minimize exposure to problems? It's all well and good to talk about after SHTF, but it seems to me that wisdom would have one looking ahead to the "What if...?"

    Not only the personal defense/preparedness, but some notions about how your local levels of government will act.

    Art
     
  19. Manedwolf

    Manedwolf member

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    Oh, this isn't sinking the ship, not yet...but they, and economists here (real economists, not administration cheerful-faced bobbleheads), know that China doesn't need to pick up a single rifle or launch a single missile to defeat the US.

    If they should ever decide to expand militarily...and they will, in time, basic fact, since they're using up their resources so quickly that they'll need to follow the age-old path of conquest...we can't oppose them. And they know this. We know this. All it would take is for them to pull out of the dollar entirely, to call in the debt, and the US economy would literally implode. The dollar would look like ruble after the Soviet Union fell.

    We've done it to ourselves with our addiction to cheap Chinese products, but the end result is that China now has the US with a firm grip on a sensitive bit of anatomy, and is entitled to a "So we do what we want with our army, what're you gonna do about?" grin.

    Brr.
     
  20. Manedwolf

    Manedwolf member

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    Well, yeah. I expect there to be serious crime issues that quickly become worst in states with the most draconian gun control, as criminals will prey on those less likely to be armed.

    I'd rather have stuff put away now, rather than pay 10x the price once everyone realizes "Wow, I need a gun to keep from being killed in the city."
     
  21. jungle

    jungle Member

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    The old call in the debt trick. Happens all the time, just happened in Argentina and Brazil. The countries didn't implode, they just didn't pay their debt, had some waived and negotiated payment on the rest. The economies were not that robust to start with.
    It is much like an individual bankrupt. Usually some debt is forgiven and the rest negotiated, otherwise the creditors have to eat the entire amount

    If China calls or sells dollars, they lose, we repay in cheaper dollars or tell them to try later if they want their money. We developed the answer to communist aggression in the '40s and have perfected it since, they can't move against us militarily with any hope.
     
  22. Ryder

    Ryder Member

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    Hmmm, I predict that all the people in this country who cut their own throats and stabbed their neighbors in the back by buying inferior Chinese crap will immigrate over there for a job.

    Hey a guy can dream can't he? :D
     
  23. CAnnoneer

    CAnnoneer Member

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    We as a society live way beyond our means. There is A LOT of fat to be cut without reaching the muscle or bone. Just look at how much junk people buy without really needing it, while they have no savings to speak of. All of that will be fixed over time, either slowly and bearably, or fast and painfully. People will have to take their pick.

    As far as debt goes, the easiest way to get rid of it is to declare war on China over the natural resources in the mid-East and take the debt as reparations. Also, we should confiscate the assets of all terrorist-supporting regimes, e.g. Saudi Arabia and Iran.

    Finally, switching to euro makes no sense to me, because Europe is rotting much faster than Canada or ourselves. That'd be equivalent to the US buying reichsmarks in 1919. Total insanity.

    P.S. You can't eat gold.
     
  24. benEzra

    benEzra Moderator Emeritus

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    Good point. I hadn't thought of that angle.
     
  25. Coronach

    Coronach Moderator Emeritus

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    The only problem I see with this analysis is that it is made, very rationally, from the perspective of a capitalist.

    The leadership in China is, at its core, communist. Communists never were afraid to knock down the whole house of cards and try to achieve the Worker's Paradise amid the ruins.

    The real question is just how deeply capitalism has eroded the Maoists' foundation. Is China a capitalist nation with some communist figureheads ostensibly in charge, or are the guys pulling the levers still hard-line communists? It is possible that we shall see.

    Mike
     
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