China Announces First Trade Deficit In Years - We Now Enter The Beginning Of The End Phase
Well.... It's not the end of the world but the juggernaut that is perceived to be China has its first crack. Not surprisingly companies like Goldman Sachs are downplaying this event. Goldman is more than likely to be on the wrong side of most issues that they weren't able to affect with lobbyist money. China will be a prime example.
Yes, there might be extenuating circumstances in this event. We shall see. But exports to the U.S. are not moving in the right direction for China. They are at the lowest level in over a years. Really, none of this point in time data has any relevance. China's fate was sealed long ago. But, let's take a look at some of our prior remarks using some of the current point in time data.
For years we have written that China will eventually quit buying U.S. Treasuries. But unlike the prevailing wisdom held by bears, our remarks were not because of the preposterous notion that they are going to dump treasuries because the U.S. government is profligate. A line of bulloney that has been perpetuated for years. One we have consistently railed against. But instead because they won't have the cashola to do so. I'm sure most everyone thought that was preposterous when we first wrote it. Just like a China trade deficit was preposterous at the time. If one understands how capital flows through the economy, this is the start of the end for China. How long this stage will last, I don't really know. But I would guesstimate we will see a full crisis starting to bloom in China yet this year or in 2011 using history as a precedence.
Yes, there might be extenuating circumstances in this event. We shall see. But exports to the U.S. are not moving in the right direction for China. They are at the lowest level in over a years. Really, none of this point in time data has any relevance. China's fate was sealed long ago. But, let's take a look at some of our prior remarks using some of the current point in time data.
For years we have written that China will eventually quit buying U.S. Treasuries. But unlike the prevailing wisdom held by bears, our remarks were not because of the preposterous notion that they are going to dump treasuries because the U.S. government is profligate. A line of bulloney that has been perpetuated for years. One we have consistently railed against. But instead because they won't have the cashola to do so. I'm sure most everyone thought that was preposterous when we first wrote it. Just like a China trade deficit was preposterous at the time. If one understands how capital flows through the economy, this is the start of the end for China. How long this stage will last, I don't really know. But I would guesstimate we will see a full crisis starting to bloom in China yet this year or in 2011 using history as a precedence.
If China is forced to sell its Treasuries, something we wrote will eventually more than likely come to pass in a need to raise capital, many may wonder what will happen to the Treasury market. Well, absolutely nothing. As we wrote years ago on this topic, distress is never beneficial to any seller. Worst case scenario is that the Federal Reserve purchases some or all of the supply if the private market is not able to step forward. No one can really predict how this will unfold to a very deep level of granularity.
We have stated for years the yuan is overvalued and it would simply be a matter of time until this dynamic revealed itself. This is a position that absolutely no one else on earth has taken. And I do mean no one except us. Well, a few days ago Jim Chanos joined our lonely position of an overvalued yuan has remarked that he believes the yuan may drop in value. Welcome to the neighborhood Jim. (Btw, the Chanos interview was on Charlie Rose last night. It will be available on his web site, Hulu and Youtube in a day or so.)
This whole competitive devaluation, aka race to the bottom of the barrel, we have written about extensively is complete and utter nonsense somehow construed as successful economic policy by the current crop of stooges calling the shots around the globe. That includes the majority of Austrian economists who are right about the debt but really have no appealing answers of how to deal with this crisis other than let the shit hit the fan and pick up the pieces. A preposterous and ridiculous notion. The United States economy would start humming tomorrow with economic policies that are reasoned and rational. Just because economists don't know what those policies are doesn't mean they don't exist. As I have remarked before, the Austrians understand money and debt. They don't really seem to understand economics.
So, with everyone clamoring for the yuan to rise, with China's balance of trade shifting, even temporarily, why under any circumstances would they allow the yuan to rise in value? And, I can assure you, it will not help this crisis. We discussed that in detail the first year writing this blog.
What happens when the yuan is devalued either by policy or by uncontrollable fundamentals? Something wrote would happen when it was considered preposterous. Strap on your helmet. The United States does not need to rely on these absolutely ridiculous policies to re-ignite its economy.
The race to the bottom of the barrel continues. And with it goes the global economy.
So, with everyone clamoring for the yuan to rise, with China's balance of trade shifting, even temporarily, why under any circumstances would they allow the yuan to rise in value? And, I can assure you, it will not help this crisis. We discussed that in detail the first year writing this blog.
What happens when the yuan is devalued either by policy or by uncontrollable fundamentals? Something wrote would happen when it was considered preposterous. Strap on your helmet. The United States does not need to rely on these absolutely ridiculous policies to re-ignite its economy.
The race to the bottom of the barrel continues. And with it goes the global economy.
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