China’s Trade Surplus Climbs To Record in June, Up 140% From Last Year

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Wang Qing, Morgan Stanley’s chief economist of greater China, estimates the yuan will gain 4 percent by the end of this year and 6 percent next year. (Bloomberg)

China’s trade surplus widened to the highest this year and exports climbed more than estimated to a record in June, adding pressure on the government to let the currency gain after the U.S. said the yuan “remains undervalued.”

The gap increased 140 percent to $20.02 billion from a year earlier, the nation’s customs bureau said yesterday. That compares with the $15.6 billion median estimate of 24 economists Bloomberg News surveyed. Exports surged 44 percent and import growth moderated for the third month, rising 34 percent.

U.S. Treasury Secretary Timothy F. Geithner said July 8 he will “closely” monitor the yuan’s appreciation after China scrapped a two-year peg to the dollar and allowed a 0.8 percent advance in the past three weeks. Policy makers in the world’s biggest exporting nation may be reluctant to step up gains while Europe’s debt woes threaten demand, even as the bureau said trade has “recovered” to levels before the global crisis.

Read moreChina’s Trade Surplus Climbs To Record in June, Up 140% From Last Year

China pledges to ‘increase the renminbi’s exchange-rate flexibility’

Mike Krieger: This Is The Last Dance:

They refuse to allow the yuan to strengthen because they know that once they do that it will mark the real end of the dollar era. So instead they are spending like crazy on infrastructure ahead of them allowing the dollar to plunge.  Then the strong yuan will be employed to purchase all the commodities they need to utilize their infrastructure and the OECD gets priced out. To those that talk about yuan devaluation, you need to be specific.  Devaluation versus what?  Versus commodities generally along with other currencies?  I can buy that argument very easily.  Versus the dollar, highly doubtful.  Why? The latest data says China owns $877.5 billion in U.S. treasuries. All they have to do is start dumping and the dollar is finished as the Fed will be forced to print so many dollars it will make Mugabe blush.  People need to wake up.

(Mike Krieger, formerly a macro analyst at Bernstein, and currently running his own fund, KAM LP, summarizies the pretend reality we are all caught in now, knowing full well America is set on a crash course with reality at some point, yet sticking our collective heads in the sand, as the collapse will be some time in the “indefinite” future. In the meantime, banks will continue to boost US GDP by peddling “financial innovation” and restructuring advice to countries like Greece… and nothing else.)


China’s Stocks May Rally Tomorrow After Yuan Policy Move, CICC, SocGen Say

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June 20 (Bloomberg) — China’s pledge to make the yuan more flexible may boost shares denominated in the currency when markets open tomorrow, China International Capital Corp. and Societe Generale SA said.

“If it leads to appreciation for the yuan, it’s good news for the market,” Hao Hong, global equity strategist for CICC in Beijing, said in a report today. “Investors will want to get into Chinese assets because they will be worth more. It will also deflect political criticism and help stem inflation.”

The People’s Bank of China said yesterday that it will “increase the renminbi’s exchange-rate flexibility” after the economy improved. Officials have kept the yuan, also known as the renminbi, at about 6.83 per dollar since July 2008, aiding the nation’s exporters and fueling tensions with trade partners.

Read moreChina pledges to ‘increase the renminbi’s exchange-rate flexibility’

Meltup (Documentary): The Beginning Of A US Currency Crisis And Hyperinflation.


Added: 13. Mai 2010

China: April Inflation Accelerates, Property Prices Jump 12.8 Percent, Lending Surges

‘A Bubble in China’ (Would be a nice title for a book.):

Marc Faber: China May ‘Crash’ in Next 9 to 12 Months (Bloomberg):

May 3 (Bloomberg) — Investor Marc Faber said China’s economy will slow and possibly “crash” within a year as declines in stock and commodity prices signal the nation’s property bubble is set to burst.


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People walk in front of advertisements outside a department store in the Xidan district of Beijing in April. (Bloomberg)

May 11 (Bloomberg) — China’s inflation accelerated, bank lending exceeded estimates and property prices jumped by a record, increasing pressure on the government to raise interest rates and let the currency appreciate.

Consumer prices rose 2.8 percent in April from a year earlier, the fastest pace in 18 months, and property prices jumped 12.8 percent, the statistics bureau said in statements today. New lending of 774 billion yuan ($113 billion), announced by the central bank, was more than any of 24 economists forecast.

Asian stocks fell, with the local benchmark index entering into a bear market, and oil and copper slumped on concern the government will move to cool the fastest-growing major economy. China should focus on preventing excessive increases in asset prices and liquidity after Europe’s almost $1 trillion loan package reduced the risk of another global slump, central bank adviser Li Daokui said yesterday.

Read moreChina: April Inflation Accelerates, Property Prices Jump 12.8 Percent, Lending Surges

Mike Krieger: This Is The Last Dance

See also:

Mike Krieger: Goodbye Disneyland! – The Neo-Feudalistic, Gulag Casino Economy Has Already Begun


Presenting the latest terrific analysis by Michael Krieger, formerly a macro analyst at Bernstein, and currently running his own fund, KAM LP, who joins Willem Buiter and everyone else left with a gram of prudence, in realizing that this is nothing more than the “last dance.”

“History is a set of lies agreed upon.”
– Napoleon Bonaparte

Most people prefer to believe their leaders are just and fair even in the face of evidence to the contrary, because most people do not want to admit they do not have the courage to do anything about it.  Most propaganda is not designed to fool the critical thinker, but only to give moral cowards an excuse not to think at all”
–  Michael Rivero

Every man gotta right to decide his own destiny, And in this judgment there is no partiality. So arm in arms, with arms, we’ll fight this little struggle, ‘Cause that’s the only way we can overcome our little trouble. –  Bob Marley, Zimbabwe

A Thousand Words On Conventional Wisdom

Conventional wisdom.  Many market analysts define conventional wisdom in relation to what direction the market is going to head in the future, but I think this is an utter mischaracterization of the concept.  For example, someone that is bullish on the market right now is likely to see conventional wisdom on stocks and the economy as overly bearish after ten years of no returns for U.S. equities.  In contrast, someone that expects a market collapse will say that everyone is a cheerleader and that the “conventional wisdom” after such a huge rally is for stocks to continue to go up.  This is not how I would describe conventional wisdom and all is does is drag the debate into the intellectual gutter.  Rather, to me conventional wisdom is more the “zeitgeist” of the financial and economic community at any given time.  Zeitgeist is defined by the Merriam-Webster dictionary as:  the general intellectual, moral, and cultural climate of an era.  In this sense an “era” will generally mean a lengthy period of time, several decades or perhaps even more extended periods.  That said, what is interesting is that every cycle in the global economy seems to bring forward distinct “mini-zeitgeists” that the experts create to justify market movements or give credence to economic dogma.

When I define conventional wisdom in this manner what I have found is that I almost always disagree with conventional wisdom.  Two very interesting recent periods were fall 2007-July 2008 and then mid-2008-early 2009 period.  In the first period, it was clear to me that decoupling was impossible because the U.S. was too large and it was clearly on the verge of collapse and, more importantly, that China and the U.S. were joined at the hip in a Keynesian economic Frankenstein that would not be easily severed.  Despite what I thought was pretty obvious at the time, conventional wisdom was that the BRICS had decoupled and all would be well.  Rather than seeing the commodity surge as the flight out of the dollar due to the distinct money policies of the U.S. Fed and everyone else, the rally was seen as evidence of decoupling.  This is mainly because conventional wisdom tends to view rising assets as a signal of prosperity.  I believe this was and is generally due to a misunderstanding of economics (we are all taught mostly rubbish in schools) and a shocking ignorance of the global financial system, how it really works and who/what is pulling the levers.

Read moreMike Krieger: This Is The Last Dance

Peter Schiff: The Truth Behind China’s Currency Peg

Our Financial Dependence on China

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By Peter Schiff

During President Obama’s high profile visit to China this week, the most frequently discussed, yet least understood, topic was how currency valuations are affecting the economic relationship between the United States and China. The focal problem is the Chinese government’s policy of fixing the value of the renminbi against the U.S. dollar. While many correctly perceive that this ‘peg’ has contributed greatly to the current global imbalances, few fully comprehend the ramifications should that peg be discarded.

The common understanding is both incomplete and naive. Most analysts simply see the peg as China’s principal weapon in an economic struggle for global ascendancy. The peg, they argue, offers China a competitive advantage by making its products cheaper in U.S. markets, thus allowing Chinese firms to gobble up market share and steal jobs from U.S. manufacturers. The thought is that were China to allow its currency to rise, American manufactures would regain their lost edge, and both manufacturing firms and the jobs formerly associated with them would return. In this narrative, the struggle centers on the United States’ diminishing leverage in persuading the Chinese to lay down their unfair weaponry. It’s a sympathetic picture, but it tells the wrong story.

While the peg certainly is responsible for much of the world’s problems, its abandonment would cause severe hardship in the United States. In fact, for the U.S., de-pegging would cause the economic equivalent of cardiac arrest. Our economy is currently on life support provided by an endless flow of debt financing from China. These purchases are the means by which China maintains the relative value of its currency against the dollar. As the dollar comes under even more downward pressure, China’s purchases must increase to keep the renminbi from rising. By maintaining the peg, China enables our politicians and citizens to continue spending more than they have and avoiding the hard choices necessary to restore our long-term economic health.

Contrary to the conventional wisdom, when China drops the peg, the immediate benefits will flow to the Chinese, not to Americans. Yes, prices for Chinese goods will rise in the United States — but so will prices for domestic goods. As a corollary, the Chinese will see falling prices across the board. As anyone who has ever been shopping can explain, low prices are a good thing.

Read morePeter Schiff: The Truth Behind China’s Currency Peg

IMF: ‘Basket’ should replace U.S. dollar as reserve currency

IMF chief sees basket currency eventually displacing dollar

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BEIJING — The imperative of greater global currency stability means the world can no longer rely, as it has done since the end of the gold standard, on a currency issued by a single country, the head of the IMF said on Tuesday.

Dominique Strauss-Kahn, the managing director of the International Monetary Fund, restated his view that a new global currency might evolve out of the Special Drawing Right, the Fund’s in-house unit of account.

“That probably has to be a basket,” Strauss-Kahn said of the eventual replacement for the dollar. “In a globalised world there is no domestic solution,” he told a forum.

Speaking later at a news conference, Strauss-Kahn reiterated the message that has been a constant refrain during his visit — that China needs a stronger yuan as part of a package of policies to help rebalance its economy by promoting domestic demand.

“For us, because it just is consistent with the new economic policy in China, the sooner the better. How fast? It will take time. It is not something which will change in one step overnight,” Strauss-Kahn said.

China has kept the yuan, also known as the renminbi (RMB), pegged around 6.83 per dollar since July 2008, following a 21% rise over the previous three years, to help its exporters weather the global economic crisis.

Read moreIMF: ‘Basket’ should replace U.S. dollar as reserve currency

Top Chinese banker: US government should start issuing bonds in yuan, rather than dollars

The head of China’s second-largest bank has said the United States government should start issuing bonds in yuan, rather than dollars, in the latest indication of the increasing importance of the Chinese currency.

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Top Chinese banker Guo Shuqing calls for wider use of yuan

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Zhou Xiaochuan, head of the People’s Bank of China, has published a personal paper proposing to replace the dollar as the international reserve currency.

Guo Shuqing, the chairman of state-controlled China Construction Bank (CCB), also said he is exploring the possibility of issuing loans to trading companies in yuan, allowing Chinese and foreign companies to settle their bills in yuan rather than in dollars.

Mr Guo said the issuing of yuan bonds in Hong Kong and Shanghai would help to develop the debt markets in China and promote the yuan as a major international currency.

It was the first time the head of a major Chinese bank has called for the wider use of the yuan, although a chorus of senior government officials have already voiced their concerns about the stability of the dollar and have said the yuan should be used more widely.

Read moreTop Chinese banker: US government should start issuing bonds in yuan, rather than dollars

Roubini: China’s yuan set to usurp US dollar as world’s reserve currency

The Chinese yuan is preparing to overtake the US dollar as the world’s reserve currency, economist Nouriel Roubini has warned.

Professor Roubini, of New York University’s Stern business school, believes that while such a major change is some way off, the Chinese government is laying the ground for the yuan’s ascendance.

Known as “Dr Doom” for his negative stance, Prof Roubini argues that China is better placed than the US to provide a reserve currency for the 21st century because it has a large current account surplus, focused government and few of the economic worries the US faces.

In a column in the New York Times, Prof Roubini warns that with the proposal for a new international reserve currency via the International Monetary Fund, Beijing has already begun to take steps to usurp the greenback.

Read moreRoubini: China’s yuan set to usurp US dollar as world’s reserve currency

Main Bank of China Is in Need of Capital


Dollar and yuan currency at a bank in China. China’s central bank has accumulated about $1 trillion in United States debt.

HONG KONG – China’s central bank is in a bind.

It has been on a buying binge in the United States over the last seven years, snapping up roughly $1 trillion worth of Treasury bonds and mortgage-backed debt issued by Fannie Mae and Freddie Mac.

Those investments have been declining sharply in value when converted from dollars into the strong yuan, casting a spotlight on the central bank’s tiny capital base. The bank’s capital, just $3.2 billion, has not grown during the buying spree, despite private warnings from the International Monetary Fund.

Now the central bank needs an infusion of capital. Central banks can, of course, print more money, but that would stoke inflation. Instead, the People’s Bank of China has begun discussions with the finance ministry on ways to shore up its capital, said three people familiar with the discussions who insisted on anonymity because the subject is delicate in China.

Read moreMain Bank of China Is in Need of Capital