Weak yuan arguments growing

You know better than to trust politicians for economic and financial advice, right?There are actually a number of people expecting a weaker yuan. Today, ZeroHedge posted on one of them, Albert Edwards of Societe Generale.
Albert Edwards Vindicated: Discusses China's Upcoming Trade Deficit, And Why CNY DEVALUATION Is Now Increasingly Likely

I still make the very simple point I made back in November; a collapse of the current recovery seems extremely plausible in both the US and China in the not too distant future. This will only intensify the mutual belligerence seen in both nations. And despite the recent downturn last year, the yuan has strengthened decisively over the last four years.

Here's my take. China is inflating like mad. The U.S. will have permanently higher unemployment due to debt problems and an uncompetitive cost structure. Something needs to fall massively in value to balance the equation. The idiots in Washington want to weaken everything by weakening the U.S. dollar. It can be factors of production though, such as land and debt costs (if the government refused to bail out these markets), tax cuts (Ha!), it can be labor costs. Another solution, however, is to throw globalization on the pyre. It's the politically easy solution.

It's also inevitable with a declining social mood that will lead to more foreign confrontations. Relations with Israel are completely falling apart and they are a strong U.S. ally. There's a reason Google wants to be combative rather than cooperative with China all of a sudden, when nothing in China has changed policy-wise. There's a reason the ECB and Federal Reserve are "split" over what to do about Greece.
(Greek Crisis May Provoke Fed-ECB Split as Euro Slides) This is also happening domestically, as bricks and bullets are sent through the windows of Congressional offices on the left and right.

Protectionism by the U.S. would raise consumer prices. It would hurt consumers and push up savings. Instead of U.S. dollars going to China to buy goods, and then Chinese buying Treasuries, Americans will buy Treasuries. This would not be good for the country's economy or wealth, but it would be good for the U.S. dollar.

China is a cash economy—there's a lot more money floating around, unlike the U.S. debt economy. If they lose a major export market (and the Europeans would likely follow in the wake of the U.S.) they will head into major trade deficit, not to mention a weakening economy. However, cash is not extinguished in a recession, and if it is bad enough, China will print lots of money to get the economy going. And if they print money, but aren't increasing the amount of U.S. dollars due to the trade deficit/recession, then eventually Chinese individuals will start swapping RMB for U.S. dollars. At some point, the government will see the reserves going out the door...and then they will be forced to devalue.

I'm still working on translating the latest Liu Junluo piece, but he is calling for hyperinflation by 2012-2013, following up his previous call for the Dollar Index to hit 130.

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