China Announces Yuan Flexibility: So What's Next?

[mEDITate-OR:
reform yourselves in the wrong direction...

These are three more very interesting charts from EconGrapher's web site/blog & article on Seeking Alpha.

The first article is an opinion on the Chinese announcement about lifting the Peg on the Yuan to the US$. This is worth reading.

The other two charts are different ways to look at China's economy.
-----------
China Announces Yuan Flexibility: So What's Next?
http://seekingalpha.com/instablog/475379-econ-grapher/77480-china-announces-yuan-flexibility-so-what-s-next
-----------

---------------
We need to remember WHEN China pegged the Yuan - July 08. Six months after the Jan 08 collapse of "securitized RE mortgages", and the same month they announced that they would stop buying FMae&FMac bonds, and shift over to TBills guaranteed by U.S. Two months later W "nationalized" both FMae&FMac and began shifting China's TBill purchases back over to buy FMae&FMac mortgages, so F&F could begin to continue to make U.S. home loans - the ONLY home RE loans available at that time.

China was terribly worried about the value of their US$ 1.5 Trillion investments in U.S. - part TBills and part FMae&FMac RE mortgage bonds; and shifted to safer TBills AND also pegged the Yuan.

IF China had allowed the Yuan to rise, when ours was falling against the Euro, they would have taken a one-for-one hit for every percent increase in the Yuan equal to a loss on their money with U.S. AND they would not have gained trade market share in Europe.

Now, the Euro [& their largest trading partner] has collapsed, to save THAT foreign market, the Yuan needs to fall, not rise. If the Yuan does rise, for China it will make a bad situation in Europe worse and a current good situation with U.S. turn bad.

Be very careful what you ask for, you might get it.

Note that for each percent drop in the Yuan, China will make an equal gain on their money with U.S. - and the loss of trade with U.S. might be more than offset by reduced trade losses, or even gains with Europe.
-------------

--------------

==============